Running your own business is no easy task even for an experienced business owner. At the very least, you will want to manage your business within the legal parameters set out by HMRC but also ideally, you will want to work as tax efficiently as possible whilst meet your tax obligations and keeping a good record with the taxman.
In this blog we review the typical issues that arise with HMRC that cause business owners to be unnecessarily penalised.
Tax return filing
HMRC do impose strict penalties on late filings which start with an immediate £100 fine. If your SA is not filed within 3 months of the deadline, further penalties are imposed by HMRC, beginning at £10 a day. The most important thing to remember here is that, even if you think you do not own HMRC any tax, you still need to complete a SA. SAs are necessary when you have income that are is not taxed at source via Pay-As-You-Earn (PAYE), such as income you may receive from renting a property.
The SA deadline is 31 January in the following tax year you are filing for and the obligation is for you to submit a return if you need to, as HMRC will not actively tell you to submit or remind you to do so.
Although a SA only needs to be filed once year, when added with other tax reporting obligations, it is understandable that the deadline can be missed in error and of course with other competing tasks, we believe it is beneficial to have an accountancy company, such as Southside Accountants, to help keep on top of your tax affairs. Contact us today to see if we can help.
Your tax bill
You have filed your SA and you now have a tax bill to contend with. The next most common issue to trigger a penalty from HMRC is paying your tax bill on time.
Cash flow is one of the biggest concerns for small and medium sized businesses, and being landed with a large tax bill you can’t immediately afford can be very disheartening!
Personal tax bills have the same deadline as SAs – 31 January. The time line for payment is relatively tight, with a 5% penalty charge if you are 30 days late in paying. A further 5% will be applied again if the bill is settled 6 months late, totalling a 10% increase overall. And finally, a further 5% on top of that if you do not settle your tax bill after 12 months of due date. And to add the sting in the tail, you would be liable for the interest on the overdue tax amount too, so the pressure to clear your personal tax bills on time is large.
To help you avoid getting into a situation such as this, having a good accountant to help you with HMRC dealings is invaluable.
Other common penalties
HMRC have powers to impose penalties on other common issues they see often, including penalising those companies who are not registered for VAT when they reach the threshold. You can read more about VAT obligation here.
As a business owner, you are also obliged to keep records of your business activities for the last 6 years of trading, and HMRC will penalise you if you cannot provide information they request, often ad-hoc and with no notice. Furthermore, if the information you provide is not complete or is inaccurate, they will also penalise you, even if mistakes are made in error.
HMRC do provide lots of help and guidance on their website to help you avoid getting into trouble with the tax man, and with the help of your accountant, you can avoid penalties if you organise yourself and your business activities carefully. An accountant will always have the latest updated tax information for you to act legally and within the time constraints.
Finally, the obvious issues of tax evasion and fraud will impose the strictest of all penalties and may even incur criminal prosecution. It goes without saying that it is important to keep within the law when running your business and keep yourself informed on your tax and legal obligations.
Allowances by HMRC
HMRC are not completely unsympathetic to business owners, and they will of course review any good reasons if you are unable to meet deadlines.
HMRC understand ‘reasonable’ reasons to include, but not limited to the following:
- Death of a close relative or partner shortly before the return or payment due date
- Unexpected hospital stay, serious or life-threatening illness
- Software failure when filling out returns
- Technical problems on HMRC’s side
- Fire, flood or theft affecting your ability to file a return or pay
- Unable to meet obligations due to disability
Your accountant will also be able to appeal any penalties imposed on your behalf if any of the above or other issues cause you to miss a deadline or payment. At Southside we would be happy to help with your business tax affairs, and your personal SA submissions. Contact us today to find out more information about our services.
Written by Shaima Todd