There’s nothing as certain as death and taxes, as the saying goes.
For any business owner or manager, tax is typically multilayered and can incorporate personal and business tax, payroll taxes, VAT charged on invoices (and paid on purchase invoices), plus more.
Here are some tax tips to make everything just that little bit easier for you.
1. Use software
For most new businesses, saving money and avoiding expenditure is key. Because of this, it might be tempting to run your accounting via a spreadsheet, and to issue invoices using a word processor.
It’s cheap. You know how these tools work because you use them daily.
But it’s a fundamental false economy.
“People are put off because they think, ‘Oh, I’m not big enough for accounting software.’ But, actually, it will pay for itself and is money well spent as far as I’m concerned.”
For some types of taxes, there’s no getting away from software.
For example, the Making Tax Digital rules for VAT that came into effect on 1 April 2019 say you must use software for your VAT records and to submit returns to HMRC.
It’s just about possible to carry on using a spreadsheet along with some add-on bridging software, but it’s not a great solution.
Additionally, with VAT and other types of taxes, it’s worth remembering that you’re legally required to keep your accounting data for a set amount of time – typically six years for VAT and corporation taxes, for example.
This can be hard to do if you keep everything in spreadsheets because it’s incredibly easy to accidentally overwrite a cell’s contents, or simply lose a vital file.
Modern accounting software stores data in the cloud, so somebody else sweats the details for you.
But software makes it easy.
You can see the tax owed figure all the time, and keep an eye on it alongside your profit and loss ledger. Why make life hard for yourself?
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2. Know your tax dates
Being on top of taxes means planning well ahead for the dates when the tax return must be submitted, or payments made.
Here are some key dates for small businesses when it comes to filing tax returns and making payments.
Self Assessment (sole trader) deadlines
- Registration deadline for those new to Self Assessment: 5 October.
- Submitting returns (both online and paper), and paying tax owed or first half of payment on account: 31 January.
- Second payment on account: 31 July.
- Submission deadline if you want HMRC to automatically collect tax owed from your wages and pension: 30 December.
Corporation tax deadlines
- Filing corporation tax returns: 12 months after the end of your Corporation Tax Accounting Period for corporation tax.
- Paying corporation tax (up to £1.5m taxable profits): Nine months and one day after the end of your accounting period for corporation tax.
- Filing annual accounts with Companies House: Nine months after your financial year ends.
- Filing your first accounts with Companies House: 21 months after the date you registered with Companies House.
Note that taxable profits over £1.5m must be paid in instalments.
- Filing and paying your VAT Return: One calendar month and seven days after the end of an VAT Accounting Period (usually every three months).
- Filing a VAT Return if using the annual accounting scheme: Two months after the end of your 12-month VAT accounting period.
- Paying VAT if using the annual accounting scheme: If you’re paying monthly (10%) then at the end of months four, five, six, seven, eight, nine, 10, 11 and 12. If quarterly (25%) then at the end of months four, seven and 10. Balancing payment: Within two months of month 12.
- Full Payment Submission (FPS): On or before your employees’ usual payday.
- Employer Payment Summary (EPS): By the 19th of the following tax month.
- Paying HMRC: You must pay the amount owned based on the FPS in the prior month, minus any reductions in the EPS from the current month by the 22nd of the tax month (or 19th if paying by post).
3. Speak to an expert
There’s no getting away from the fact that taxes can be complicated – and it’s for this reason that experts have offered their services for hundreds of years.
Some are based on the same high street where most of us do their shopping. In the UK, the profession is so important that it’s given a royal charter to indicate the high level of expertise.
That’s right, we’re talking about accountants and bookkeepers.
When it comes to handling tax, they’re simply a necessity.
They know the terminology.
They know the word of the law.
But, more importantly, they know how the law works in the real world. They know what the government expects in terms of tax from certain kinds of businesses or individuals.
In short, they’re the true tax tips heroes of the business world.
But if you think accountants are just number crunchers, you’re out of date. Yes, that’s an important part of what they do, but the modern accountant is more likely to be a trusted adviser and will be full of advice at the times when you need it.
Thinking of expanding your business? Thinking about taking on new staff? Need to get a loan to support a big order that could change everything?
Accountants can help with not just the legalities but also the cash forecasts needed and also the advice about how best to proceed and any grants or tax credits that many be available. After all, they speak to hundreds of similar businesses doing similar things every year.
Why not let them share their expertise?
Paul Donno is an accountant and director of 1st Accounts Online. He’s one of the new type of accountants who offers more than the basic yearly accounting service.
He says: “We’re part of your business. That’s a real move from the past.
“We’re not just looking at your books. We’re looking at your records, making sure they’re straight and talking to you about your business on a quarterly basis.
“That’s been a fantastic service for our clients.”
Although it’s not necessary to use a chartered accountant, it’s a good sign that the individual knows their stuff – and has been able to prove it in regular exams.
4. Read up on what you need to know
The government has put a lot of work into making its official website – gov.uk – as easy to understand as possible.
It includes pages for most, if not all, forms of tax (such as payroll, Self Assessment or corporation tax). And in most cases, you’ll find explanations in plain English. All you have to do is search for what you’re interested in.
If you need more detail, you can read an HMRC manual.
These are online and PDF-based guides that were created by HMRC for its own staff but, thanks to data protection laws, are now available to everybody.
The manuals serve as high-quality instructive reference guides. Accountants use them if they need the answer to a query. The language can sometimes be a little obtuse but they’re surprisingly readable.
They’re often a great way to learn about a tax change too, because they’re one of the first things that will get updated.
If you need to know about VAT, you might try one of the VAT Manuals.
Again, they can be a little of a difficult read for the untrained individual, but they contain every single detail you need to know.
If you use one of the VAT schemes such as flat rate, cash accounting or annual accounting and are not using an accountant to advise you, they’re vital for getting everything straight before you begin.
5. Optimise what you owe in tax
There are many established ways that even the government promotes as ways to avoid handing it less cash. This is known as tax relief.
For example, self-employed people can use allowable expenses to reduce their tax bills. These can include things like the cost of phone bills or travel costs.
It can include some clothing expenses for things like branded uniforms (but not general clothing you simply wear for work), or financial costs such as bank or insurance charges.
If your business is incorporated as a limited company, you can claim capital allowances for things like equipment, machinery, or business vehicles such as cars, vans and lorries.
“A new client of ours previously relied on a friend to do his Self Assessment,” says Donno. “But neither of them knew about capital allowances. So, he hadn’t claimed for his van for the last six years.
“We got involved and got him a nice big rebate. We’re not talking hundreds of pounds. He received several thousand pounds. It’s made a huge difference to him.
“But this is the sort of pitfall people fall into.”
There are also lots of smaller discrete tax relief schemes that apply to certain industries or situations. For example, if you decide to close your business and switch to becoming a sole trader (a route often used by people who are semi-retired), you can claim Disincorporation Relief.
What you have to remember about tax relief schemes is that the government won’t necessarily tell you about them – which is why it’s always best to seek the advice of an expert.
In short, there’s nothing wrong with finding ways to pay less tax – provided you keep it legal.
6. Speak to HMRC
If you have a query, why not simply phone HMRC and ask for help – or open a webchat window?
HMRC offer a variety of helplines and chat services for all kinds of taxes. Sometimes the lines can get busy, especially around crunch time for taxes such as Self Assessment in January, but phoning early in the day can help.
Usually, you’ll need to have your tax details and it’s wise to have these ready so you’re not hunting around for them in a hurry.
If you’re contacting HMRC about Self Assessment, for example, you’ll need your Unique Taxpayer Reference (UTR) number, as well as your National Insurance number. Typically, these can be found on any documentation you’ve been sent by HMRC.
Conclusion on how to calculate tax
Although the government likes to say that tax needn’t be taxing, the fact is that it’s inherently complicated – and there’s no sign this will change anytime soon.
But as we’ve seen above, there are ways of making life easier – and getting the most out of the tax system to ensure your business is compliant but doesn’t overpay.
A little preparation and investigation can go a long way towards making life easier for your business when it comes to tax.
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