Self-employed sole traders, partners in a business, or company directors are likely to be registered for tax self-assessment, and should realise the January 31 deadline is looming. This is the date by which they must file their 2013 to 2014 annual return online for the money they’ve earned or paid themselves – and also given HMRC what they owe.
If you’ve yet to get yourself organised, you may already be too late to meet the date, and avoid a fine. The deadline for filing a paper return passed long ago on October 31. And, if you’re relying on technology, you’ll find registering to file an online return takes longer than you may think. HMRC informs new account users of their personal self-assessment code by post, which takes at least seven days or even up to a fortnight to arrive. With just over a week to go before the internet cut-off point, it’s clear some business owners will inevitably get caught out.
But it’s not the end of the world if you’re running behind schedule. Pay your fine, get all the required information in to the tax man as soon as possible, and vow to be more organised next year. But that means thinking now about how you handle your tax matters from here on.
How much will I have to pay in fines?
If you’ve been unlucky this year, and are likely to receive a fine, you may not have to pay too much if you get your return filed as soon as possible.
- Missing the zero hour at midnight on January 31 will incur an automatic £100 fine.
- After that, returns that are more than three months late will result in a £10-a-day subsequent charge up to a maximum of £900.
- If the delay gets past the six month point, then another penalty of five per cent of the tax owed or £300 – whichever is the greater sum – will be payable.
Look ahead to April’s tax year end
Once you’re clear of the current round of self-assessment admin, you’ve got April 5 to look forward to. This day marks the end of the tax year, and the date by which you should have finalised any tax-efficient savings plans, and pension issues. If you have money to save, but have yet to use up your ISA allowance, take advantage of this tax-free form of investment before the April deadline. You can save up to £15,000 either by using a cash ISA, putting the equivalent sum into an investment ISA, or splitting the allowance across cash and investment deals – all without paying any tax. There are further details about this on HMRC’s website.
Equally, make the most of allowances on your pension contributions to cut your tax bill. Shockingly, two out of three self-employed people has no kind of pension, according to recent research from the Resolution Foundation. But business owners can contribute up to £40,000 to their pension annually tax-free, effectively a tax efficient way of saving for the future. Again, HMRC’s website has more information and online calculators to help you use your pension allowances to full effect.
Keep your records in order – and avoid investigation
Make a vow to file all of your receipts properly, as well as bank statements, interest earned on savings and investments, and any dividend payments paid to you as a director. This type of information is vital to creating a thorough, and correct tax submission, so keep all of your paperwork in order, and in one place either physically or on your computer. Perhaps it’s time to think about upgrading your account processes, and investing in a cloud computing system if you haven’t already done so.
Clear, honest, and thorough records matter. Not claiming interest or dividends paid, for example, is a sure-fire red flag to the tax man, and you could risk an investigation by HMRC – not a pleasant experience for anyone. Cash-based firms, and construction businesses, in particular, often attract attention from the authorities, so make extra sure your records are squeaky clean, with all transactions, payments, and expenses documented. If you’re unlucky enough to be subject to an investigation, HMRC offers some guidance on what to expect on its website.
If you want to be organised, and to minimise your tax bill next year, then the time to start thinking hard about 2015 to 2016’s tax return is probably as early as the end of the summer. Mark a date in the diary now to start planning for next year’s submission. Better yet, make an appointment in advance to see your accountant – the person who can really help you get your tax affairs in place.
Talk to your accountant
It’s a message that we’ve repeated often on this blog, but your accountant can be your business’s best friend. Stay in touch with him or her throughout the year, not just when major tax deadlines are on the horizon. Getting the right professional advice should save you money in the long run, and more than justifies the beancounter’s fees. A trained individual with expertise in your company’s industry sector should be able to identify all the allowances you can claim to minimise tax, be they transport-related, the costs of maintaining a home office, or buying essential kit needed for your job. They’ll also understand how your individual tax liabilities fit in with those of the business itself if your enterprise is registered as a limited company.
You can find a qualified accountant via the Institute of Chartered Accountants For England and Wales, the Association of Chartered Certified Accountants, or even by word of mouth from trusted contacts in your local business community, though it’s a good idea to get a recommendation from more than one person. HMRC provides detailed information about filing your tax return on its website or through its helpline on 0300 200 3310. The tax office is also inviting general tax queries via its Twitter feed @HMRCcustomers.