Money Matters

6 tips to ensure tax isn’t taxing for your business

Getting your taxes right if you're a small business owner needn't be hard. Here's some tips to ensure payments to HMRC are right each time.

If there’s one thing that induces real fear among those new to business, it’s getting their taxes right.

If you fall into that category, you’re not alone. Businesses of all sizes face anxiety about tax.

But there are simple things you can do to make life easier. In this article, we highlight six examples that will help you to boss it when it comes to tax.

Here’s what we cover:

1. Know your tax deadlines

The first step to getting your taxes right is to know the deadlines by which you have to send your tax returns, and pay what you owe.

Get either of these wrong and HMRC might impose penalties, which get worse the longer you delay – even if that’s by mistake.

Here’s some key dates if you’re a sole trader and use the Self Assessment system:

  • Registering for Self Assessment: By 5 October in your business’ second tax year.
  • First advance payment (first payment on account): 31 January during the tax year (6 April – 5 April the following year).
  • Second advance payment (second payment on account): 31 July after the end of the tax year.
  • The date that paper-based Self Assessment submissions must be received by HMRC: 31 October after the end of the tax year.
  • Filing Self Assessment if HMRC are to collect taxes due from wages and pensions via PAYE: 30 December after the end of the tax year.
  • Filing a Self Assessment return online: 31 January after the end of the tax year.
  • Filing a paper tax return for registered pension scheme: 31 January after the end of the tax year.
  • Paying income tax and National Insurance due, including any balancing payment: 31 January after the end of the tax year.

2. Get help from a tax professional

There’s an easy way to get your tax right, and that’s to use a professional – an accountant or a tax adviser.

These people work with taxes all the time. They literally know the word of the law. And they have a wealth of experience in businesses just like yours.

They’ll know exactly what you can and can’t claim as expenses. This can mean saving money on your tax bill compared to a do-it-yourself approach.

And if you want to expand your business – perhaps getting a vehicle, for example, or taking on employees – they’ll know exactly what you must do to remain tax compliant and tax-efficient.

Worried about the cost of hiring a professional?

Most accountants or tax advisers pay for themselves in what you save. But even if they don’t, the amount of work time they save for you – time you can spend on earning money instead – can make it worth the investment.

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3. Simplify how you manage receipts

A key part of getting your tax right is accounting for things you buy in the course of business, such as goods or services.

If you don’t do this correctly, you might end up paying too much tax because you won’t be able to claim the right expenses.

In short, you have to keep receipts.

Where do you keep yours? Stashed in your wallet, purse or bag? In a shoebox under your desk? If so, it’s not the most efficient system.

So, wouldn’t it be great if you could just buy something – and simplify how you manage your receipts?

This is possible with modern accounting apps such as AutoEntry. Simply take a picture of the expense receipt using your mobile phone, as soon as it’s given to you.

The relevant details will be automatically recognised and entered into your accounting software.

Job done.

4. Prepare for Making Tax Digital

The wide-ranging Making Tax Digital (MTD) initiative from the government will eventually require virtually all businesses and individuals in the UK to do their government taxes via software.

This will assist with meeting tax deadlines or, in some cases, change them entirely.

MTD for VAT was the first part of this programme to become law, back in April 2019.

And income tax is next.

Making Tax Digital for Income Tax Self Assessment (also known as Making Tax Digital for Income Tax, or MTD for ITSA) is due to come into effect in April 2026 for businesses, self-employed individuals, and landlords with income over £50,000. And in April 2027, those earning over £30,000 will be included.

So, if you’re not already using software, you’re going to need to do so.

This means there will no longer be a requirement for Self Assessment for these businesses or individuals when it comes to declaring income.

5. Set up a direct debit

Most of us simply pay our tax bill when it’s due, perhaps by bank transfer or paying at a Post Office. But you can also set up a direct debit to automate the payments to HMRC.

If you only pay a single payment on 31 January each year then you’ll need just one direct debit.

But if you typically make a payment on account on 31 July, then you’ll need two.

Setting up the direct debit is easy. Simply follow the instructions provided by HMRC.

But be aware that it can take around five days to set up – so make sure you sort it out well ahead of time.

6. Set up a separate tax account

It’s wise to create a separate bank account for the money you set aside for tax each month. This needn’t necessarily be a business bank account.

Business accounts have monthly fees but, on the other hand, often they come with useful extras, such as free access to debt collection services.

But using your own personal bank account, while tempting for the convenience, isn’t a great idea.

If HMRC ever decides to investigate your business then it may demand to see your bank statements. (Notably, it might ask to see these in any event – but only if they’re not satisfied after seeing your business account.)

Don’t forget that, until you’re required to pay it, the money you save to pay your tax can be used however you wish.

You could put it into a savings account, for example, and the interest you earn until you have to pay is yours to keep.

If you haven’t already got an ISA account, why not create one with your bank for your tax payments?

Just make sure that it’s an account that pays interest monthly, rather than yearly, because you’ll have to dip into that money every half year if you’re paying tax on account.

Final thoughts on getting your taxes right

Sleeping soundly at night is much easier if you know you’ve got your taxes right.

The selection of tips here can be used together to get you closer to a good night’s sleep. All it requires is a little care and attention. Just spend maybe an hour between jobs or customers to ensure the tips are implemented.

A little time invested up front to get taxes right saves a lot of time, worry and effort later on.

Editor’s note: This article was first published in November 2020 and has been updated for relevance.