Emily Coltman gives her top tips for getting your books in order now, so you can avoid a self-assessment headache next year.
It’s been just over a week since the self-assessment deadline, and unless you were one of those super-organised people who got their tax return completed months in advance, chances are that you found it stressful trying to get all of your financial information correct and submitted to HMRC on time.
So how can you avoid this hassle next time your tax return is due?
Collect and file everything as it arrives
It’s not uncommon for small business owners to find themselves searching desperately for a vital receipt or bank statement to include in their tax return. So if you had that problem, you can prevent it from happening next time by setting up a file to keep your paperwork in for your tax return.
If you only have a little paperwork, for example interest on one bank account and two dividends each year, then you could use a simple box file. However, if you have more paperwork to deal with, you may want to consider using a lever-arch file with dividers so that you keep different documents separate from each other.
Then, as each different piece of important paperwork arrives, put it in your file ready for when you come to prepare your tax return. For example, your bank should send you a bank interest certificate showing the interest they’ve paid you on your account, and tax they’ve taken off, soon after the end of the tax year, 5th April. If you have a job, your employer will give you a P60, and P11D if you need one, by the end of May.
Manage your books regularly
If you run your own business, don’t leave the bookkeeping till the last minute. Otherwise you’ll be frantically looking through all of your expense receipts and bank statements next January, trying desperately to work out how much money you’ve made and how much tax you owe.
An effective bookkeeping system can take as little as an hour a week to maintain. Just make every simple task like invoicing, managing expenses and forecasting your tax an integral, but manageable, part of your working life.
You may find it’s easier to create a routine by keeping the same time every week, for example an hour on a Monday morning, to look at your current financial position, create, send and chase invoices and log your most recent expenses. That should ensure you always have timely, accurate information about your business’s profit and cash – and that ‘bookkeeping’ never becomes too gargantuan a task.
Streamline your bookkeeping
Some micro-business owners find they can manage all of their financial data through a simple spreadsheet, but that’s not necessarily the most effective option for everyone. So if you’re finding it a chore to wrestle with your figures in an Excel document, perhaps you could look for other tools to streamline as many of the processes as possible.
For example, could you benefit from dedicated invoicing or accounting software? Some systems enable you to feed bank transactions into your accounts automatically, track expenses on the go using your smartphone, send your invoices by email and automatically chase up late payments. And some can also forecast the amount of tax you owe and even file your tax return! That could save you hours of wasted admin time in the long run, and all you’ll need to pay for is a monthly subscription fee or a one-off upfront cost.
Look for an accountant early
Unless your business is very small and does not have a lot of financial data or complex tax affairs to deal with, it’s a good idea to work with a professional accountant who can help steer you clear of any tax pitfalls that could potentially trip you up.
If you don’t yet have an accountant, this a very good time of the year to look for one, because February and March tend to be a quieter time of the year for the accountancy profession. That’s because the deadline for self-assessment filing has just passed but the next tax year has not yet finished.
Accountants will have more time to talk with you now than in January, so make the most of this. Remember that ultimately it is your business you need help with, and you are responsible for it to HMRC, so it’s important to take the time to find the right accountant who can explain things to you in plain English and make sure that you pay the right amount of tax. If you establish a good relationship with your accountant at this quiet time of the year, you’ll be in a better position to work with them when your tax is due.
Don’t wait to file your tax return
You can’t file your tax return for 2014/15 until after 5th April 2015 (the end of the tax year) – but it’s a good idea to file it as soon as you can after that date, once all your paperwork has arrived. This means you’ll have one less job to worry about and can concentrate on running your business.
It’s also potentially good news from a tax point of view, because if your tax and class 4 NI liability for 2014/15 is less than your liability for 2013/14 was, then you may be able to reduce your 31st July 2015 payment on account. Also, if you’re due money back from HMRC, the sooner you file your tax return, the sooner they will repay that to you!
Talk to your accountant and make sure all of your financial information is correct and ready, so you can complete and file your tax return quickly. That way you’ll be able to enjoy next January without having to face another last-minute Self Assessment panic.
Emily Coltman FCA is chief accountant at FreeAgent.