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Did you file your tax return on Christmas Day?

Many business owners are hard at work over the festive period – some even rushing to file their online Self-Assessment tax return by the January deadline.

Late payment penalties

As the self-assessment tax deadline fast approaches, you could be feeling smug because you’ve been organised and on top of it throughout the year, or pressurised because it’s been left till the last minute. HMRC reports that there were over 860,000 customers in January 2022 who filed in the last hour before the deadline.

Miss this 31 January cut-off for online tax returns or fail to pay your bill and you may be fined. It’s £100 for anything up to three months late, with further penalties for any returns filed later than that. On top of this, you’ll also be charged interest on late payments. This rate is currently set at 7.75%.

For those filing for the first time through HMRC registration, you would have had to factor in another 10 days.

How you could prepare for tax deadlines in the year ahead

So with a sigh of relief to be at the end of another tax year, now’s the time to nail those deadlines for the next one. Emily Coltman FCA, chief accountant to award-winning* accounting software provider FreeAgent, says: “We help our customers keep their books up to date well in advance of any deadlines by sending invoices and payment reminders, processing expenses on the go, and providing bank feeds so that customers see their bank transactions. Our Tax Timeline shows when taxes are due and how much there is to pay.”

FreeAgent is included for our business banking customers as long as they retain their bank account. Specific account eligibility applies.

Why is it important to maintain accurate records?

“If you don’t keep accurate records, then not only do you risk paying the wrong amount of tax – too little, or too much – you also risk making bad financial decisions,” points out Emily. “For instance, you might decide you want to buy a new computer. If you aren’t maintaining your records, you might have forgotten the big VAT bill you have coming up, or that you ordered a batch of new business cards and haven’t paid the supplier yet. If you then spend the cash on your new computer, you’ll be left struggling to pay your other dues.”

Digital record keeping

The government’s Making Tax Digital (MTD) encourages businesses to use compatible software to manage their tax affairs with HMRC. All VAT-registered businesses must now file VAT returns using compatible software and store financial records relating to VAT digitally.

“As you issue invoices, record costs, and track your bank transactions, accounting software can work out your VAT behind the scenes, as long as you record all your transactions correctly,” says Emily.

How to save for next year’s tax deadline

With the current higher interest rates it’s worth looking at your savings accounts options. Bear in mind there are different business savings accounts, depending on whether you want instant access to your cash or if you’re happy to lock your money away for a set period. Criteria apply.

Could you use a notice savings account, where you tie in your money with a notice period of, say, 35 days as you save for the next tax year? If you have enough money to put aside a little each month or on an ad hoc basis, it could help you budget for your tax payments, but this will vary for each business.

“Some may need to have their savings within easier reach, for instance businesses that carry stock where there’s a risk of obsolescence. For example, a greengrocer may want to be able to quickly replace their stock of apples if a customer drops one and puts it back and the entire tray ends up going bad,” explains Emily.

“A business that consists of one individual might also need a more readily available source of emergency cash, for instance a personal trainer may need to replace lost earnings if they suffer an injury and cannot work with their clients,” she says, adding that she would always question how certain it would be that a customer does not need instant access to the money.

Other areas you can save money

* Institute of Certified Bookkeepers LUCA 'Friendliest Software' award 2023.

 

For more on financial wellbeing, visit our finance hub.

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