For sole traders and company directors alike the beginning of the tax year (April 6) brings the ideal opportunity for a tax and finance health check.
Think: have you paid everything on time? Have you done your homework on reliefs and allowances? Are your business processes fit for purpose in terms of efficiency?
Your aims are:
- Stay on the right side of the taxman
- Minimise your tax liability where possible
- Avoid getting weighed down with paperwork
With all of this in mind here are some points you should consider when getting ready for a new tax year.
The beginning of the tax year isn’t the only red letter date for your diary if you’re an unincorporated business owner. If, like the majority of business owners, you intend to file your tax return online you have until January 31 to submit it. However, paper returns need to be received by HMRC by October 31. It’s important to start thinking about putting together your tax return as soon as possible to avoid a last minute scramble. Filing your return doesn’t need to be a marathon session as with online filing you can save your changes and then go back to it any time before the document is submitted.
As a company director, you should expect to receive a notice to complete a personal tax return at the beginning of the new tax year. Assuming you pay yourself a regular salary as director, tax for this should already be taken care of via PAYE (make sure you have your P60 handy when you fill in this part of your personal tax return). If your basic salary is topped up by dividend payments this will need to be included in your return as well.
For Corporation Tax your company’s payment date is 9 months after the ‘due date’. This is normally the last day of your accounting period. Check that all key dates are recorded to avoid penalties and interest payments for late payment.
Consider spreading your payments
For Self Assessment tax returns, the balance of any monies due for a tax year is payable by January 31 of the following calendar year. Payment may seem a long way off. However, it’s important you start planning for it now. You should also be careful not to forget the payment on account requirement that comes into play during your second tax year and thereafter. This can sometimes seem like a ‘double whammy’ for new business owners, as on January 31 you will have to pay both your outstanding tax for the previous year as well as the first payment on account for the current year. Consider setting up HMRC’s direct debit option to avoid the temptation of dipping into money that isn’t earmarked for this.
Make dealing with expenses easier
If it’s very early days for your business the day-to-day transactions you’re involved with may still be few in number. Be aware that this can change quickly as your customer list grows and bills for sundry expenses mount up. That means that the new tax year could be the ideal opportunity for a ‘spring clean’ of sorts and ensure you have a central file for incoming and outgoing expenses, arranged in date order. For sole traders, if having to calculate commonly encountered yet sometimes tricky areas such as mileage and using your home as an office is putting you off doing your tax return, take a look HMRC’s simplified expenses provisions as taking these items into account on your tax return may be easier than you think.
Self Assessment: get to grips with tax relief on losses
In the early days especially, it’s common for expenses to exceed income. If this rings true, and you spend at least 10 hours a week on your business, it’s possible to reduce your tax burden to take into account this loss.
If you have a tax liability arising out of income or capital gains from other sources during the year you made a loss, you can take the loss off your income and/or capital gains for that year. Unused losses can be carried back and set off against income and/or capital gains for the previous year and then against income only for the previous three years.
It can also be carried forward and used against future losses, provided it is used within 4 years of the year of loss.
Find out how capital allowances can apply to ‘big’ purchases
Have you invested in higher value business purchases such as machinery and computers over the last tax year? If so, it’s possible to deduct some or all of the value of such items before you pay tax via the capital allowances scheme. If the item you’ve purchased falls into the category of ‘plant and machinery’ you may be able to claim the full value of this from your profits before tax under your ‘Annual Investment Allowance’. Sole traders should claim for this via their Self Assessment tax return. However, directors should claim on their company tax return.
Whether and how best to use the capital allowance system will depend on your individual circumstances. If you’re planning a major investment this year seek early advice from your accountant to make that purchase as tax efficient as possible.
Companies: consider your eligibility for ‘R&D’ tax credits
If yours isn’t strictly a ‘tech’ company you may have glossed over HRMC provisions for tax credits and enhanced deductions that are available for revenue expenditure on research and development (‘R&D’). Don’t be too hasty to overlook it. Have you tweaked your product over the last tax year to help give you a competitive edge? Have you taken a ‘standard’ process and made it better? Take a closer look at HMRC’s definition of R&D and consider closely whether your business might qualify.
Is the new tax year the right time to review your business structure? Find out more in our help centre.