Avoid penalties: Meeting your tax obligations as a new business owner

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Date: 8 March 2022

A calender with a reminder to file tax return

Filing tax returns can be a tedious and difficult process, but this doesn't mean you should put it off until the last minute. Trying to sort it all out in a rush will only increase the risk of missing tax deadlines, which could land you in hot water with HMRC.

If you've just started a business, you may be feeling overwhelmed by the prospect of organising your tax returns and making sure everything is accounted for in time. This is especially true if you're not particularly savvy with numbers.

Luckily, there are several solutions to this common issue. Keep reading this helpful guide to discover how you can meet your tax deadlines and avoid any nasty surprises from HMRC.

What self assessment penalties could you face?

"Surely if I'm a day or so late, it can't be that bad".

Unfortunately, this approach will only damage your finances and could get you flagged by HMRC as someone who misses tax deadlines. This could make it more likely that you receive a spontaneous tax investigations in the future.

Here are the facts: If you're even a day late with filing your tax return, you'll face a penalty of £100. If you still haven't submitted your tax return to HMRC after three months, you'll receive another £100 penalty.

If your tax return is six months late, HMRC will estimate your Corporation Tax bill (which you can't appeal against) and a penalty of 10% of the unpaid tax will also have to be paid. Six months after this, another 10% penalty will be added.

The penalties are even more severe for those who persistently file their tax returns late. After three late tax returns, the £100 penalties will become £500 each.

Of course, if you have a legitimate excuse for why your tax return is late, such as an illness or bereavement, you can appeal against the penalty by writing to HMRC.

How to meet your tax deadlines

So, how can you avoid these penalties and submit your tax returns correctly and on time? Here are some key strategies to follow:

  1. Use accounting software

Not only can accounting software help you submit your tax returns before tax deadlines, but it can also organise your finances all year round. This is important because staying organised will make it easier for you to get everything in order when you need to file your tax return.

With accounting software, you can keep track of invoices and receipts, calculate VAT, and look at informative financial reports to see how well your business is doing. This makes is easier to keep your finances organised at all times, which will take a huge weight off your shoulders as the tax deadline approaches.

Accounting software will also help your business be MTD-compliant. Making Tax Digital (MTD) is a government initiative to reduce tax errors, which cost the Exchequer £8.5 billion from 2018 to 2019. Making Tax Digital requires that businesses keep digital tax records and use software to submit tax returns.

Currently, only businesses with a taxable turnover above £85,000 need to be MTD-compliant. However, from April 2022, the same rules will apply to all VAT-registered businesses. So, to comply with these new tax regulations, you'll need to make sure you have MTD software by this time.

  1. Be aware of deadlines

As a business owner, it's your responsibility to stay up to date with changes to tax rules or deadlines. Claiming that you didn't get a reminder from HMRC (or anyone else) is not a valid excuse for late filing.

It's a good idea to regularly check for government updates and make a note of any important deadlines or things to remember. If you're prone to forgetting things, then you should set a high-priority deadline notice on your online calendar and set regular reminders leading up to the event.

  1. Don't wait until the last minute

When setting reminders on your calendar, remember to leave yourself enough time to get everything sorted before the deadline. It's no use setting a reminder for the day before and then having to rush through your tax return in a blind panic. This approach is also much more likely to lead to mistakes.

Instead, you should leave yourself enough time to calculate and double-check your tax return before you submit it. Set aside some time to go through it all in detail well before the deadline.

  1. Hire an accountant

In addition to using accounting software, you may want to hire an actual accountant. An accountant can file your tax return for you, and since they know what they're doing, this will eliminate your stress.

Hiring an accountant will free up time that you would otherwise spend sorting out your tax return, which means you can spend more of your time on other important (and potentially more enjoyable) aspects of your business. This is especially true if you're running a business on your own and previously had to do everything yourself.

Of course, you can't completely ignore the financial side of your business just because you have an accountant. As a business owner, you need to pay attention to your finances so that you know how well your business is doing and how you can improve profits. You'll also need to send relevant information to your accountant so they can submit your tax return.

  1. Check your tax return

Once your accountant has completed your tax return, make sure you check it over before it's submitted to HMRC. Again, you can't ignore this part of your business just because you've hired an accountant.

If you've calculated your tax return yourself, it's even more important that you double-check everything before you submit it. You could always ask someone else to check it for you if you're worried - sometimes a fresh pair of eyes can spot mistakes that you've overlooked.

  1. Ask for help

Finally, in the unfortunate event that you don't have the money to pay your taxes, you should still file your tax return and ask for help as soon as possible. Delaying your tax return and receiving late penalties will only make the situation worse.

HMRC may allow you to pay your tax in instalments if you explain your difficulties to them. If you have an accountant, you can also ask them for advice about your finances and develop a plan to get your business back on track. 

Conclusion

Many new business owners dread filing their tax returns, but this process doesn't have to be so complicated. With tax software, adequate planning or even an accountant, you can complete your tax return easily and efficiently, helping you to avoid penalties and leaving you more time to focus on the parts of your business you're passionate about.

Copyright 2022. Article was made possible by site supporter Aislinn Carter.

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