How to Make Sure Your Business Is HMRC Compliant

If you want to get your business HMRC compliant, the good news is that the basics are the same for almost every owner-managed company: register for the right taxes, keep proper records, file on time and pay what is due. The hard part is not understanding the rules but keeping on top of them month after month. This guide sets out what to check, in the order most owners meet it.

What HMRC compliant means in practice

HMRC does not give a business a compliance certificate. Being compliant means that, at any point, you could show HMRC that you are registered for the right taxes, that your records support the figures you filed, that returns were filed accurately and on time, and that tax due has been paid. Penalties and interest follow when any of those slip.

Registrations

Check that the business is registered for everything it needs.

Companies House. A limited company must be registered, and keep its details, directors and shareholders up to date.
Corporation Tax. A company must tell HMRC when it starts trading. [VERIFY: timescale for registering for Corporation Tax after starting business activity]
PAYE. If you pay yourself or anyone else a salary, you need a PAYE scheme set up before the first payday.
VAT. You must register once taxable turnover passes the VAT threshold, and may choose to register earlier. [VERIFY: current VAT registration threshold and the deadline for registering after crossing it]
Other registrations. Depending on the business, you may also need the Construction Industry Scheme, registration with the Information Commissioner’s Office for data protection, or other regulatory registrations.

Making Tax Digital

Making Tax Digital requires businesses to keep digital records and submit returns using compatible software. It already applies to VAT. It is being extended to Income Tax for sole traders and landlords above an income threshold, with the threshold falling in stages. [VERIFY: current Making Tax Digital dates and thresholds for VAT and Income Tax]

If it applies to you, you need software that keeps the records and sends the returns. Spreadsheets on their own are not enough unless they are linked to compatible software. We set up and support cloud accounting for our clients.

Payroll and Real Time Information

If you have a payroll, you must report pay and deductions to HMRC every time you pay someone, on or before the payday. Late or missing reports lead to penalties, so build the reporting into your routine. [VERIFY: current Real Time Information requirements and penalty regime]

Also check:

that pension auto-enrolment duties are being met
that benefits and expenses for directors and employees are reported correctly
that year-end payroll returns are filed and employees’ end-of-year documents are issued on time [VERIFY: year-end payroll deadlines]

Record keeping

HMRC expects you to keep records that support every figure you report, and to keep them for a set number of years. [VERIFY: how long business records must be kept] In practice that means:

keeping sales invoices, purchase invoices and receipts, on paper or digitally
reconciling bank accounts every month
keeping mileage logs if you claim business mileage
keeping a record of the directors’ loan account
keeping the minutes and paperwork behind dividends

If your records are a month or two behind, the cost is rarely the late bookkeeping itself. It is the missed deadlines and mistakes that follow. A monthly routine for the books is the cheapest compliance measure there is.

Filing and payment deadlines

Deadlines depend on your company year end, the tax year and your VAT periods, so the dates below are for guidance only. [VERIFY: every deadline in this section against current HMRC and Companies House guidance]

Corporation Tax. The tax is due, and the return is filed, by dates linked to your company year end. The payment date is earlier than the filing date, which catches many first-time owners out.
VAT. Returns and payments are normally due shortly after the end of each VAT period.
PAYE. Payments to HMRC are normally due monthly or quarterly, depending on the size of the payroll.
Self Assessment. Directors who receive dividends or other untaxed income usually need to file a personal tax return, with payments due on set dates in the tax year.
Companies House. Annual accounts and the confirmation statement each have their own deadlines.

Put every date in a shared calendar with a reminder well ahead of it. We do this for our clients as a matter of course.

Director’s loan accounts

If you take money from the company, or put money in, that goes through the director’s loan account. An overdrawn account at the year end can lead to tax charges for the company, and can create a benefit-in-kind charge for you if interest-free loans exceed a limit. Keep the account up to date every month and discuss any large balances with your accountant before the year end. [VERIFY: current charge on overdrawn director’s loan accounts, the repayment window and the benefit-in-kind loan limit]

A checklist to review each quarter

Use this as a quick check. If you cannot tick an item, that is the place to start.

Registered for Corporation Tax, PAYE and VAT where required
Companies House details and confirmation statement up to date
Software in place that meets Making Tax Digital requirements where they apply
Bank accounts reconciled and bookkeeping up to date
Payroll reports sent to HMRC on or before each payday
All invoices, receipts and mileage logs stored safely
Director’s loan account reviewed and any overdrawn balance dealt with
Next deadlines for VAT, PAYE, Corporation Tax and Self Assessment in your calendar
Dividends supported by profits and by proper minutes and vouchers

If you are behind

If you have missed a filing, underpaid tax or discovered an error, do not wait for HMRC to find it. Contact HMRC or your accountant as soon as you can. Telling HMRC voluntarily about an error generally leads to lower penalties than being discovered, and HMRC offers routes to correct mistakes and to arrange to pay in instalments if you cannot pay in full. [VERIFY: current voluntary disclosure routes and Time to Pay arrangements]

The worst response is to say nothing. Penalties and interest increase with time, and HMRC can look back several years if an error was careless or deliberate.

If HMRC opens an enquiry

If HMRC writes to say it is checking a return, do not respond alone. Pass the letter to your accountant straight away, because the way you answer the first letter often shapes everything that follows. Our short guide to what to do if HMRC opens an enquiry explains the stages.

How KSBA can help

We keep our clients’ filings, registrations and records in order as part of our accounts and tax work, using cloud accounting where it suits the business. We can review where you stand now, put right anything that is out of date, and set up a calendar and routine so that you do not have to keep it all in your head. We agree a fixed fee before work begins.

To talk it through, see our page on business advisory in Manchester or call 0161 835 2323.

Talk to us about business advisory

Related guides

This guide is general information, not advice for your situation. Tax rules change and the right answer depends on your circumstances, so speak to an advisor before you act.