Businesses are required to pay various taxes to Her Majesty’s Revenue and Customs or commonly known as HMRC, which implements different systems to streamline the process and make it easier for businesses. Two key payments made by businesses are PAYE and VAT.
PAYE is HMRC’s system of collecting income tax and national insurance from employment, but it does not apply to employers whose employees are not paid £120 or more a week, who receive expenses and benefits, or who have another job or receive a pension.
If a business has registered for VAT, they can charge VAT on business sales, goods that are hired or loaned to someone, business assets that are sold, commissions, items that are sold to staff, business goods that are used for personal reasons and non-sales like gifts.
Both VAT and PAYE require businesses to report to HMRC and maintain records of various payments or transactions. While HMRC provides a clear guide on how to keep records for PAYE and VAT, new businesses often struggle with this aspect of running their operation.
Regardless of how long you have been running a business and making PAYE and VAT payments to HMRC, these tips for maintaining PAYE and VAT records and associated returns will definitely be of use to you.
- Do not hesitate to ask for help
Insisting that you can handle all activities and tasks related to your business internally or by yourself is the wrong attitude to have. Certain processes, especially concerning tax, can be confusing and complicated for the management team to take care of by themselves. This includes PAYE and VAT.
This is where a tax consultancy can be of use to the business. Professionals who study tax systems for a living have a better understanding of the requirements of a business as well as the records they must maintain.
A tax consultant, for instance, can help business owners or employers in several ways. They can explain the PAYE or VAT system and the importance of maintaining records and associated returns while also advising business owners about the other aspects of running a business, especially in terms of growth and expansion.
- Know what records to keep
HMRC requires businesses to keep various records for PAYE and VAT. Having a checklist and knowing exactly what records you must maintain will help you to keep your records organized. It also makes it easy to submit any documents or information HMRC requires from you.
In terms of PAYE, an accounting firm would help you keep full records for three years from the end of the tax year they relate to. Failing to maintain full records may result in a penalty of up to £3,000.
The records you must keep include what you pay your employees and any deductions you make as well as employee leave and sickness absences. You must also record tax code notices, taxable expenses or benefits, and Payroll Giving Scheme documents. The latter includes agency contract and employee authorization forms.
You must also record any reports and payments you make to HMRC.
Looking at VAT record keeping, you must have with you copies of all invoices you issue, originals or electronic copies of all invoices you receive, self-billing agreements and their names, addresses, and VAT numbers.
Other records include a VAT account, debit or credit notes, import and export records, records of items you cannot claim VAT on, goods you give away or take from stock for personal use, and all zero-rated, reduced, or VAT exempt items you buy or sell.
A business must also keep general business records like bank statements and cash books.
- Keep track of penalties and data protection requirements
HMRC has specified various records, deadlines and ways of keeping records that businesses must comply with. As mentioned above, failing to maintain a full record of PAYE documents can result in penalties up to £3,000. In terms of VAT, for instance, VAT registered businesses with a turnover of more than £85,000 must register for VAT.
Being aware of the requirements and penalties will help you maintain records in an accurate and efficient manner.
In addition to the records businesses must keep, HMRC also has certain regulations regarding data protection. Under PAYE, for instance, HMRC specifies that businesses must follow rules on data protection, which includes making sure the information is kept secure, accurate, and up to date.
