Happy New (Tax) Year
This week, April 6 marks the start of the new tax year. It also marks an opportunity to make some fresh resolutions when it comes to your bookkeeping and how you organise your finances.
Tax. It’s a word that strikes fear into most people, mainly through trying to navigate the complicated system and work out exactly how much you owe.
Before his 2016 budget speech, Chancellor of the Exchequer George Osborne tweeted its significance for small businesses: “Today’s budget puts the next generation first: delivers surplus, improves schools & health, boosts savings & small biz, backs working people.” Points such as the creation of a business tax road map have been well received by the small business community. Rate relief has risen from £6,000 to £15,000, starting next April. This effectively means 600,000 businesses will pay no rates at all and 250,000 small businesses will pay less.
With the new tax year starting on April 6, we’ve taken a look at the tools and apps available to you to make the process a little easier – and spoken to the small business owners who have learnt a thing or two along the way…
When you begin running your own business, the temptation is – understandably – to grow the number of accounts you have and the amount of money there is coming in. While doing this, make sure you keep thorough records and paper copies of your transactions, as this will make filing tax a lot easier down the road. Founder of tech start-up Dhruvin Patel has experienced this temptation first hand: “I was naïve and thought most documentation was online, so I could get it when I needed,” he says. “But you should be printing everything and putting it in relevant folders for storage if you or the HMRC ever want it. It’s tough because as I was my growing business, I was advised to focus on bringing money in and worry about accounts later. Which makes sense, no point wasting time on accounts when you haven’t got customers yet, right? But you’ve got to keep a little bit on top of things or you’ll find yourself forever backtracking.”
Use the tools
Lots of help is available to those starting their own business, but sometimes the nitty gritty reality of filling out a tax return can intimidate even the most confident of business owners. Managing Director of Fly Marketing Tim De La Salle knows that it can get complicated: “When I first started the company I was bad at managing tax and accrued late filing penalties from HMRC. Fortunately that’s no longer the case.”
As well as HMRC providing a lot of help and advice for people who are self-employed, there are specific pieces of software that help small businesses specifically with their tax: “We use Xero accounting software, which can directly file our VAT returns to HMRC”, Tim says. “I extract data from the accounting software to give me an overview (a sort of tax dashboard) of things like current future corporation tax liabilities, likely personal income tax liabilities and also plug in upcoming dates for VAT filing so we don’t miss anything. To achieve that I use Zapier and our dashboard software.”
Dhruvin makes use of this too: “I use a completely free accounting software tool called Wave. From sending invoices, taking payments, generating spreadsheets which you can then incorporate with your own, it’s amazing and makes everything easier.” These tools are designed to help small businesses stay on top of their taxes and you should definitely take advantage of them.
Above all, you need to know exactly what state your finances are in, and how much you’re likely to need to pay in tax. The level of your business account does not reflect tax that is still to come out, so think about separating it off straight away to give a clear picture. “You don’t want to come to a point where you have tax to pay but not enough cash in your account to pay then amount. You should always have some cash stored away for tax each month”, says Dhruvin. “Your bank balance isn’t always a true indication on your company’s performance.”
There are even tools to help you with this, Dhruvin says: “Companies House has an overview. It tells you if your accounts are up to date and if your annual return is up to date. It also dates when your next accounts and/or return is due by. I note it down a month early to make sure I get everything in order.”
Even though it can feel like a complicated process, there are obvious advantages to being on top of tax: “I think one of the most important benefits is the prevention of cash flow issues which all too often can destroy small businesses (and larger ones),” says Tim. Now’s the time to make some changes to your small business.