At the start of the New Year small business owners find themselves running around stressing about their Tax Return. It is counted as one of the most stressful tasks that they need to do. But by being organised and knowing in advance what needs to be submitted and when goes a long way to making the process easier. Unfortunately, many businesses leave it to the last minute and some simply run out of time only adding to the stress and one that ends up costing them more money.
Who needs to do a tax return?
If you are self-employed as a sole trader and earned more than £1000 or if you are a partner in a business, you will need to submit a tax return. This also applies to those who own properties, have received share dividends or other income from savings, investments or from foreign income. Plus, if you or your partner earned £50k and receive child benefit you will be obliged to complete one.
When is the Return due and how is it submitted?
There are two ways to submit a return. The paper return deadline is set as the 31st October in the year prior to when your return is due or you can submit online by the 31st January 2020.
If this is your first time completing a tax return you will need to register with HMRC, this process takes approximately 7 working days, so factor this into your timeline.
What information is required to complete a tax return?
Here are some of the documentation you will need to complete your return:
• P60 – relates to employment income and tax deductions
• P11D – relates to expenses and benefits
• Personal income
• Business Bank Statements, receipts and sales invoices
• Savings – interest accrued on your savings accounts
• Capital Gains relating to assets such as shares & sales of properties
• Child benefit letter
If you miss the tax return deadline you will face an automatic penalty. This is set at £100 and will be charged whether you have tax to pay or not. If you are up to 3 months late you will be charged £10 a day to a capped timeframe of 90 days plus the initial penalty. Meaning you are looking at £1000.
If you continue not to submit the return, the fines just keep getting worse. Up to 6 months late and you will either be charged £300 or 5% of the money owed. If you are 12 months late you will receive an additional £300 or 5% of the money due on top of the figures above.
Plus, in some cases you may find that you have to pay 100% on what you owe. So basically, the quicker you submit your return the less you have to worry about.
Valid excuses to be late
Like everything in life, we tend to blame others for our lack of disregard for not doing as we are expected. The usual lame excuses of I forgot, I didn't know or that the dog ate it will not satisfy HMRC.
If you are unable to complete your return you should speak to HMRC as soon as possible. You can find out more about acceptable excuses
by visiting the HMRC website.
Making Tax Digital
In the digital world many business owners use accountancy software to help them manage their finances. In 2019 HMRC made a move to speed up this process by announcing the release of Making Tax Digital. However, many have been left confused as to what needs to be done and when.
The original intention was to help eliminate typos and other common errors that can be easily made if using a calculator and an excel spreadsheet. These and other common mistakes ultimately cost the government £9bn a year. That by using accredited software HMRC can see that the intention of doing VAT and other tax related tasks is there to ensure that the information submitted is correct.
However, when the scheme was rolled out in 2019, only half of small businesses signed up. Plus, HMRC's system has been slower to develop than originally expected causing further delays. The rule of thumb is that if you have a business turnover of £85,000 or more you are legally obligated to use a digital software. If not then you will have additional time to sort out transferring your accounts online.
Time is running out so don't delay as the situation will only get worse. If you are struggling then always seek advice by calling and speaking to someone at HMRC. If you owe money you can opt to pay the amount in full or spread it over the year through your tax code if you meet the requirements. However, if you are unable to pay the tax owed there are options available to you.
The take home is that like all other business issues you need to get organised, ensuring you have all necessary information to hand. Consider this not just as something you need to do but is the right thing to do for you and your business. Failure to comply will only hurt you in the long run and no one wants to receive a knock from the tax man.