Navigating the world of taxes can be one of the most daunting aspects of starting a new agency. With various tax obligations to consider—from VAT registration to self-assessment and corporation tax—it’s crucial to understand your responsibilities from the outset. This guide will demystify the key tax obligations for new agency owners, helping you stay compliant and avoid costly mistakes.

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Understanding VAT Registration

Value Added Tax (VAT) is a tax on goods and services, and as a new agency owner, it’s essential to determine whether you need to register for VAT with HM Revenue & Customs (HMRC).

• When to Register: You must register for VAT if your taxable turnover exceeds the VAT threshold, currently set at £90,000. This figure represents the total value of everything you sell that isn’t exempt from VAT. If you expect to exceed this threshold within the next 30 days, you must register as well.
• Voluntary Registration: Even if your turnover is below the threshold, you might choose to register voluntarily. This can be beneficial if most of your clients are VAT-registered businesses, as it allows you to reclaim VAT on your business expenses. However, weigh this against the additional administrative burden of filing VAT returns.

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Self-Assessment and Income Tax

If you’re operating as a sole trader or a partner in a partnership, you’ll need to register for self-assessment and pay income tax on your agency’s profits.

• Registering for Self-Assessment: Notify HMRC by 5th October after the end of your first tax year. For example, if you start your agency in May 2024, you’ll need to register by 5th October 2025. Failure to register on time could result in penalties.
• Filing Tax Returns: As a self-employed individual, you’ll need to complete a self-assessment tax return each year, detailing your income, expenses, and any other relevant information. Tax is usually paid in two instalments—31st January and 31st July—based on your previous year’s earnings. The first instalment is an estimate, and the second is an adjustment based on your actual earnings.
• National Insurance Contributions (NICs): In addition to income tax, you’ll need to pay Class 2 and Class 4 NICs, depending on your profits. These contributions are essential for building up entitlement to certain state benefits, including the State Pension.

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Corporation Tax for Limited Companies

If you’ve structured your agency as a limited company, you’ll need to deal with corporation tax, which is charged on your company’s profits.

• Registering for Corporation Tax: After registering your company with Companies House, you must also register for corporation tax within three months of starting your agency. HMRC will issue a Unique Taxpayer Reference (UTR) for your company, which you’ll need for all future tax dealings.
• Filing and Paying Corporation Tax: Corporation tax is usually paid nine months and one day after the end of your company’s accounting period. For example, if your accounting period ends on 31st March 2025, your corporation tax will be due on 1st January 2026. You must also file a Company Tax Return (CT600) with HMRC within 12 months of your accounting period’s end. The current corporation tax rate is 19% for profits up to £50,000 and 25% for profits over £250,000, with a marginal rate of 26.5% for profits in between.
• Director’s Responsibilities: As a director, you’re responsible for ensuring that your agency meets its tax obligations. This includes maintaining accurate records, submitting tax returns on time, and making sure that any tax due is paid promptly.
• Personal Tax Return: Depending on your remuneration package from your agency, you may or may not need to file a personal tax return too. Getting this right from the start is as important as covering off the Limited company aspects. 

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PAYE for Employers

If you plan to hire employees, you’ll need to operate a Pay As You Earn (PAYE) scheme to deduct income tax and National Insurance contributions from your employees’ wages.

• Setting Up PAYE: Register as an employer with HMRC before your first payday. PAYE is calculated each time you pay your employees, and you must submit Real Time Information (RTI) to HMRC every time you run payroll.
• Reporting and Payments: PAYE payments must be made to HMRC by the 19th of the following month (22nd if paying electronically). Late payments can result in interest charges and penalties.
• Pensions Auto-Enrolment: Don’t forget your duties under pensions auto-enrolment. You must enrol eligible employees into a workplace pension scheme and contribute a minimum of 3% of their earnings, while employees must contribute 5%.

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Key Points

Understanding your tax obligations is critical to running a successful agency. Here’s a summary of the key steps:

• VAT Registration: Determine whether you need to register for VAT and decide if voluntary registration could benefit your agency.
• Self-Assessment: Register with HMRC, file your tax returns, and pay any tax and National Insurance contributions due.
• Corporation Tax: If you’re a limited company, ensure you’re registered for corporation tax and meet your filing and payment deadlines.
• PAYE: If you have employees, set up a PAYE scheme and comply with your reporting and payment obligations.

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FAQs

Q: Do I need to register for VAT if my turnover is below £90,000?

A: No, but you may choose to register voluntarily if it benefits your agency.

Q: How often do I need to file a self-assessment tax return?

A: You must file your self-assessment tax return annually, covering the previous tax year.

Q: What happens if I miss the corporation tax filing deadline?

A: Missing the deadline can result in penalties, so it’s crucial to file on time.

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Managing your agency's taxes doesn’t have to be overwhelming. At Right Recruiters, our compliance partner specialises in providing tailored accounting services for agencies. Book a consultation with our expert team today. We’ll help you navigate the complexities of tax and ensure your agency stays compliant, so you can focus on what you do best—growing your business.