Bobby Chadha, accountancy expert at Intuit, the leading global provider of financial management software, examines the most important things to remember whilst filling out tax submissions this January:
Considering that 500,000 new businesses were founded in the UK in 2013, for many business owners 31st January 2014 will be the first time they have filed a self-assessment. It should be an exciting opportunity to reflect on the first year’s successes but the process can become an unnecessary, and costly, headache.
By following a few simple pieces of advice, business owners and sole traders can concentrate on running their companies rather than worrying about the taxman:
1. Record keeping – working throughout the year
The secret to tax returns is preparation. The best way to prepare is to keep diligent records throughout the financial year. Keep a track of all your expenses – office costs, phone bills, stationery and repair call outs linked to your business can all be claimed back. If you tend to lose receipts, then get into the habit of taking photos of them and emailing them to yourself or saving them online using software. Keeping everything in one place will save you time in the long run.
2. Make time, do it at home
Getting your tax return right is important. Even a minor error can distort your figures and incur a fine from HMRC. Ensure you have a quiet space to dedicate uninterrupted time to your tax submission. Get all of your papers together and set aside a couple of hours.
3. Know your UTR
The UTR is the Unique Taxpayer Reference given to you when you register with HMRC and it is required to submit your taxes online. However, if you lose your UTR, HMRC cannot give you a new number over the phone, so you will have to wait for a postal delivery. If you realise you have misplaced your UTR make sure you apply to HMRC for a replacement at the earliest possible opportunity.
4. Understand the financial year
Get your dates right. Remember to include all income earned by your business between 6th April 2012 and 5th April 2013. Don’t forget you have to include all income earned within the tax year and not when you were paid. If you sent out your invoice in the current tax year but didn’t get paid until after the deadline, it still counts.
5. Self – employed Pages.
Remember to only include the income generated directly by your business when filing on the self-employed pages of your return. The HMRC are not interested in any other income such as personal investment, rental income or other jobs when filling in the self-employed pages. Take the time to differentiate everything that is a direct result of your business and do not blur those boundaries.
Separating VAT from your income is a relatively simple sum. However, people tend to use Excel for their record keeping and they forget to remove VAT. This is a really common problem and it is exactly the sort of mistake that can lead to a fine from HMRC. Double-check or use software which will account for your VAT correctly and automatically.
7. Online solutions
Fortunately, there are innumerable apps, packages and platforms that can help you with your tax returns. There’s no point in spending hours adding up figures, removing VAT and compiling documents when technology can do it all for your. Software such as Intuit’s QuickBooks Online allows you to save everything throughout the year in the cloud. Intuit’s mobile app, My Biz Tracker, lets you do everything from your smartphone, making the process even easier.
8. Check with an accountant
Use your accountant as much as possible when filing your tax return. They are the experts, so make the most of their knowledge and experience. Ensuring the financial health of your company is your number one priority, and an accountant should recognise that. Speak to them, share your documents with them and follow their advice to the letter.
9. Avoiding fines
Ultimately, the reason for all this hard work is to avoid fines. These are the fines you can expect to receive if you are late with your tax return:
£100 fixed penalty if you are one day late
PLUS, £10 a day for each subsequent day you are late, to a maximum of £900
PLUS, £300 or 5% of the tax due if you are more than six months late
Missing the tax submission deadline is simply not worth the hundreds of pounds it could cost you. By taking your time, staying organised and using the resources available to you, you can file your taxes in ten minutes and concentrate on the more important task of looking forward to another lucrative year.
This may sound like the most obvious point of all, but don’t forget to actually pay your tax return! Small business owners, especially if they’re doing this for the first time, will have read a lot about what they need to do to avoid fines and get their tax return in on time, but they must remember to actually pay by the 31st January.