Employment and payroll

This week we have the second part of our BMTV Business show with Guy Robinson from Xebra Accounting. We talk about Payroll, Employment and VAT.

When you employ someone you have to operate pay as you earn, most likely you will want to use some software to do this. You have to deduct tax and national insurance from the employees pay and then you have to pay HMRC the tax and national insurance, this is your responsibility as an employer. You also have to pay Employers national insurance on top on this.

You also have to submit the payroll to HMRC before you pay people, they need to check that the people you are paying exist and if there are any issues they will contact you and you will need to rectify this before you pay your employer. You have to submit your payroll information electronically these days and it is relatively easy to do.

You have to operate PAYE on your own wages as a limited company but as a sole trader, however, you don’t have to pay yourself. Your pay is known as drawings which you take from the business. You do have to pay tax on these drawings if you make a profit of £10,000 then you can only draw out £6,000 as the other £4,000 will be used for tax. You do have a personal allowance of £11,000 that you can earn before paying tax.
In the first year of trading, a business will usually not pay any tax as HMRC won’t know how much to you should be paying. What you find is that in the second year businesses often get double-taxed and this is the point where most businesses fail as they’ve spent the money and not held any back for tax. Guy recommends that you put £200-£300 aside for every £1,000 you draw out.

VAT

You only have to register for VAT if your turnover is over £83,000 over the past 12 months. Once you reach that threshold you have to register within 3 months. Most small business will opt to go for cash-accounting which means you will only account for VAT when you buy and sell things. A normal system for VAT is called accruals which means you recognise VAT when you raise invoices. There is also a fixed rate where you can cut down the work you have to do by multiplying your turnover by a fixed rate percentage, this is typically 12%. You can also opt to do a VAT return once a year and pay on account.

You can register for VAT voluntarily if your turnover is below £83,000 but you do have to put a business case together for HMRC. It can be beneficial to register for VAT if you work business to business.

Finally, a quick fact

There are 5.4 million businesses in the UK, half of those (2.7 million) are 1 person businesses. Only 17,000 are classified as big businesses which accounts for about 10% of the business that is done in the UK! Just goes to show the power of the small business!

That’s it this week, see you next time.

Rob

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