Running a business is a multifarious endeavour and one which cannot be reasonably managed alone. In incorporating a limited company, it is necessary to build out your administrative team in order not only to grow successfully but also to meet key regulatory and legal requirements. HR departments are often the last to form in a new business, but their presence is crucial – in part due to specific tax responsibilities beyond payroll.
Business Taxes – The Basics
Tax is an extremely important consideration for all businesses and a complicated subject at best. There are various avenues by which tax needs to be calculated, paid or otherwise addressed, and failure to properly engage with any one of these avenues can result in serious financial or punitive consequences. The first form of business tax that a new business owner might think to approach is that of Corporation Tax, which is essentially the taxation of any profits made by a formally incorporated business.
Corporation Tax is not calculated by HMRC on behalf of a business; rather, it is the business’s responsibility to report earnings and tax liability via an annual Company Tax Return. For limited companies, Corporation Tax encompasses any source of profit, including the sale of assets; for business partnerships or sole traders, asset sale comes under Capital Gains Tax.
Corporation Tax is usually handled by accounting departments, making HR’s role ancillary with regard to this specific tax. However, there are other forms of tax in which HR have an active, indeed crucial role – principal of which is Income Tax.
Managing Income Tax
Income Tax is the taxation of an employee’s salary, proportional to said salary. It is managed via PAYE, which collects Income Tax and National Insurance from each employee; payroll systems are used to calculate what each employee owes according to their tax code, and the money is automatically deducted in order that the business can pay HMRC on their behalf.
HR departments are vital here, in the tracking of new employees and of relevant tax codes for each employee. For larger businesses, it is necessary to field advice and counsel from a wide range of expert sources; income tax reporting is an interdepartmental concern and one that can have real ramifications for both business and employees if not handled correctly; in instances where incorrect tax calculations have been made, employees can be burdened with the responsibility to repay tax they didn’t know they owed.
Taxation and Company Benefits
Another corner of taxation with which HR departments need to engage relates to company benefits and the disbursement of gifts. The vast majority of gifts offered to an employee are, ultimately, taxable – contrary to popular belief, such as with the gifting of gift cards. There are some comprehensive rules which litigate this, one of which is that the cost of the gift must not exceed £50 per employee. Gift cards below this value are tax-free, but anything above this is taxable; if the gift is a monetary one, it is taxable regardless of the cost.
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