Dear Migrant Woman team,
I saw on your website some good advice from Simon Newsham on tax rules for opening a new business but there was one thing not covered that I would like to ask about.
I am new in my business and working very hard to make it successful. It has taken me a lot of effort and investment to put it on the radar but the more it grows the more I am concerned about the taxes that may be due. I have been working for other companies for many years and I know that my company dealt with the tax but now I need to understand taxes when running my own business. I have been told that there is a deadline for sending in a tax return by the end of January.
You may advise me to hire an accountant but I am worried about how much that may cost and wonder what I should do as preparation, and what I can do to keep the cost down.
You need good preparation and record keeping & costs need not be prohibitive.
It’s great you’re thinking about how best to manage your tax affairs as so often this is left until the last minute. Self-employed individuals are required to file a tax return and make any payment of tax due on or before 31st January following the tax year in question.
This means that, for the current tax year (which runs from 6th April 2014 – 5th April 2015), your self-assessment tax return and any tax payable must be made on or before 31st January 2016. Depending upon your expected profits for the next tax year (2015/16), it may also be necessary for you to make a payment on account of 50% of the expected tax on those profits. The second 50% payment on account (again calculated by reference to the profits for the 2015/16 tax year) would need to be made on 31st July 2016. Any adjustments would be dealt with in the following 31st January 2017 payment. Accordingly, the payments are split as follows:
- 31st January – payment of any tax owed for the previous tax year (balancing payment) and the first 50% payment on account; and
- 31st July – second 50% payment on account.
It’s important to realise this is a taxpayer’s responsibility and one cannot wait for HM Revenue & Customs to chase for a tax return and any payment. Failure to file and make tax payments on time can result in default interest and penalties being imposed.
In terms of preparation, you should keep good records of all costs incurred by the business (including any costs incurred by you personally, but for business purposes) and the income received, together with copies of all receipts, invoices, statements and related paperwork.
You should certainly have a separate business bank account so you can easily isolate income and expenditure related to the business, rather than having these go through your personal bank account.
I would highly recommend you engage an accountant or a chartered tax adviser. Often they add so much more to your business as a trusted adviser, instead of just dealing with the numbers and compliance aspects. The costs should not be prohibitive and their expertise should ensure that you take advantage of all reliefs and savings available. You could also consider using some form of book-keeping software package which can offer a low cost solution, provide you with good management information which is readily to hand and be in a format which your accountant can easily use to ensure you meet all filing and tax payment obligations.
I wish you every success with your new business venture. It can be very hard work, but equally highly rewarding.
If you have any questions, please do not hesitate to contact Simon Newsham who is a Tax Partner at the law firm Winckworth Sherwood, email firstname.lastname@example.org