For business owners, 2020 has been a year of unexpected and unprecedented challenges. Whilst we are all experiencing difficulties we’d never have anticipated before March, some things never change…self assessment season is just around the corner again. The pandemic has put an almighty strain on small business owners’ livelihoods, wrecking havoc on both their business and personal finances. As we enter the final act of 2020, and with the self assessment deadline looming at the start of next year, now is a good time for entrepreneurs to start thinking about how to streamline their accounting practices to set their finances up for success, and in doing so, ensure that they can focus on getting their businesses back on track in 2021. Making savings through the annual self assessment is an obvious place to start.
What is a payment on account?
If you don’t know, you are not alone. It is essentially an additional tax payment made twice a year, in January and in July. It was designed to align the tax payment to the current tax year so that HMRC are not waiting so long between when you earn your income and when you pay across the tax. The payment on account is calculated based on the current year’s tax bill and divided equally between the two instalments. It is possible to adjust your payment on account if there is a genuine reason – contact us to discuss your circumstances.
Some useful tips are outlined below;
- Ensure the return is submitted before 31st January 2021 – this ensures you are not subjected to a fixed £100 late filing penalty
- Check now to ensure you have all the documents you will need; this may include your P60, P11D, PAYE coding notice, dividend vouchers, etc. – you should be keeping all receipts and evidence for at least 6 years
- Hire an accountant to complete the tax return for you – a professional eye is more likely to identify opportunities you may not be aware of to mitigate tax; the cost of paying for this service is likely to reap dividends
- If you are a higher rate taxpayer you could consider making charitable donations to registered charities under Gift Aid. An election can be made in the tax return to consider this as made in the previous tax year, thus increasing the amount of earnings subject to lower rates of tax as opposed to higher rate tax
- Remember to claim for use of home especially if you were working more from home before 5th April 2020 due to the coronavirus
- If you use your car for business purposes and you are reimbursed by your employer at less than 45p a mile (first 10,000 miles and 25p a mile above this) then you can claim the excess. If you are not sure ask your employer to confirm this
- If you are a member of a professional body and the membership is required for your job then you can include the cost as an expense in your tax return – see here for more information
- It may be likely that business in the current tax year is much reduced due to the effects of the pandemic. This means you should give consideration to reducing your payment on accounts in your tax return
- Remember if you deferred your payment on account due by 31st July 2020 then this can now be paid by January 2022 – a time to pay arrangement can be set up with HMRC and the number to call is 0800 0159 559
- Consider whether or not you qualify for the marriage allowance and ensure you claim this if you do. Find out more here
- Ensure you are claiming all expenses you are entitled to (speak to us if unsure)
Plan now for next year
It is a good time to have your tax affairs sorted before the festive season for peace of mind. In doing so, greater focus can be afforded for business growth ahead of the new year. Below are AJN tips;
- Ensure applicable government schemes are utilised – for example the Job Retention Scheme (furlough scheme) ends in October and the Job Support Scheme (JSS) starts in November – if you are entitled then ensure you are primed to claim at the right time
- Review business processes – are your books managed using cloud accounting software? If not, this should be given serious consideration. Not only has cloud accounting revolutionised the way accountants work, the benefits are borne by small businesses owners too. Time saving processes are an inherent feature when using software correctly. If you don’t have this in place for your business then please contact us for more information
- Consider a monthly accounting service – AJN encourages clients to utilise a monthly accounting service for the benefits it brings over an annual service. By working with an accountant throughout the year you have greater visibility of business performance and timely decision making can be made to impact profits and in turn tax liabilities in line with your goals. AJN works with our clients by first understanding their goals and then working with them to help achieve them. This makes advice bespoke and relevant to each individual client
The above are generic tips and not all of the points will apply to all taxpayers. We are always happy to speak to clients about their particular affairs in greater detail.