Most of the businesses these days are grappling with Making Tax Digital, and many conventions are being turned over their heads. Nonetheless, there are some age-old rules for filing your tax returns that have stood the test of time and knowing them always helps you.
Are you a self-employed small business? There may be different ways of calculating tax for corporations and small businesses, the basic rules are the same. Let’s see how you can make the process of filing your tax returns as smooth as possible.
But before that, if you haven’t yet started, you must bring all your data into an MTD-compatible accounting software because under the new Making Tax Digital regime, only accounting applications that are compatible with the new regime can be used to maintain financial records and submit tax returns. So, this is the first-most step you need to take to be able to successfully file your tax returns as a small business. For more information on Making Tax Digital you can explore dedicated sections on our website.
Let’s now see what of those 5 things that can help you file your tax returns as a small business.
Register for self-assessment
When registering for self-assessment, you may be facing two situations: you have not filed a tax return before, or you have filed a tax return online before.
To register for self-assessment, you will need a Government Gateway User ID and password to sign into your business tax account. You will need it to register for self-assessment and Class 2 National Insurance. If you want, we can help you with this.
Once you have registered you will receive your Unique Taxpayer Reference (UTR) number within 10 days. You need your unique tax reference number to file your returns.
Although a bit of a lengthy process, you can also register by post. You can fill in a form on your computer and take a printout and then send it by post to HMRC.
Keep your paperwork in order and plan ahead
These may include proof of your earnings from your business, your P60 with details of expenses, your pension payments and if any gift aid payments made or received. Do you have other sources of income such as rental property, stocks and savings, or any royalties? Entering all these details into an MTD-compliant software in advance can be a great help.
It will also help you if you plan ahead and get everything compiled into a single source in advance. Organize all the details as early as possible and try to submit your details earlier.
As a self-employed small-business there is often this tendency to maintain all the financial records by oneself, but at the time of filing your tax returns one realises what a complicated process it may turn out to be, and it is better managed by a trained accountant.
Submit your self-assessment tax returns
Once you have obtained your User ID you can submit your self-assessment tax returns. Most of the people are doing it online these days and your tax consultant can easily help you with that, but if you want to go the traditional way you can also download the SA100 tax return form, print it out and send it to HMRC. The HMRC website can be used to submit your tax online but due to MTD you may need to submit it through the software itself.
As a self-employed person, in the beginning you must fill two forms, depending on whether your annual turnover is about the VAT threshold level or below. For the former you need to submit the SA103F form and for the latter, SA103S. You may further have to fill multiple forms if you have other sources of income. You can get this information from your accountant.
Skipping deadlines may incur penalties
As a professional accounting firm, we are always advising our clients to stick to deadlines. If you skip the deadlines the penalties that are imposed are quite needless. They cause you hassle and also make you pay more than you should. Among the self-employed small-business owners there is a greater tendency to miss the deadline because people are busy taking care of their business rather than handling the finance side of it. Therefore, it is important to collaborate with a professional accounting firm so that all your financial records are kept up-to-date while you can focus on growing your business.
Optimize your deductibles
Deductibles are business expenses that can lower your taxes provided you keep track of them. Taxes are not calculated based on your gross revenue; they are calculated after deducting business and operational expenses. Out of your yearly revenue you may need to pay the staff and contractual employees. You may need to rent office space or use a part of your house to run your business. You need to spend money on broadband, travel, marketing, communication, office supplies & stationery, and transport, among many other operations. These expenses can be used to lower your net income and this in return can lower the total amount of tax that you need to pay.
Conclusion
As a self-employed small-business owner you are often taking care of multiple things at the same time. Filing your tax returns, or at least maintaining records for filing your tax returns, is often relegated to the back seat because it is a once-a-year affair. In reality, it is not. Just the filing process is a yearly activity otherwise, every single expense and every single instance of income goes into the data that is used to calculate your tax. Hence, it is an ongoing activity, and must not be ignored. Working with a dedicated accounting firm can make the process smooth. Your financial records are taken care of in the background while you can focus on your business.