Top Tips To Help Small Businesses Avoid Tax Return Penalties

Top Tips To Help Small Businesses Avoid Tax Return Penalties

The tax return deadlines always seem to be so far away, however, they soon arrive with stealth and often take small business owners by surprise. It is vital you allow enough time to fill your company’s tax return out accurately; else you may end up being hit with a huge fine from HMRC.

You have two deadlines to aim for, one of which is the 31st October and is for submitting a paper based tax return whilst the other is 31st January for an online submission. You need to be prepared to submit your company’s tax return; otherwise you risk punishment in the form of a fine, which no small business can afford.
Submitting a tax return needn’t be so bothersome, therefore below you’ll find a number of handy tips and guidance which will hopefully help you avoid making any mistakes, as well as ensure your return is submitted on time.

Make sure you have a record of all of your expenses

Keeping an accurate record of all your expenses is incredibly important for a small business. You need to make a concerted effort to keep track of everything you spend, from buying pens, pencils and paper right through to parking, petrol, travel and expensive computer equipment.

These expenses will be totted up against your earnings and reduce your overall profit, which means you will owe less tax. You must have proof of your expenses if you are claiming them, since you never know when your claims might be followed up by the taxman. If you do not have proof, you can get into a lot of trouble, so make sure you keep all receipts, bank statements, cheque stubs and so on to prove what you have spent.

Ensure you always double check your calculations

This may sound like an obvious comment; however, the number of small business owners that fail to check and then double check their calculations is outrageous! Whatever you enter into your tax return should be checked and double checked by you and then by at least one other person.

This will reduce the likelihood of you having made an error and ensure that, should HMRC query your return, you have nothing to worry about. Online submission will help with the calculations so you don’t have to worry as much, however if you are doing a paperbased submission then the most important calculation to check is that your net income and tax deducted figures come to what you have stated is the gross income of your company.

File it on time!

For goodness sake, make sure you file your tax return on time! Despite having plenty of time to fill in and submit returns, many small businesses leave it to the last possible minute and often come a cropper because they don’t have all the paperwork or additional information they actually need.

If you are submitting a paper based return, it must be received by HMRC by midnight on the 31st October. This means you can’t send it on the 31st October! You should aim to get your return into the post at least a week before, if not two weeks for safety’s sake. This means you should really have collected all the information you need throughout September to allow accurate filling out of the return in early October. It’s also a good idea to send it via Recorded or Special Delivery so you can prove your efforts should HMRC not received it on time.

If you are completing your return online, then the deadline is midnight on the 31st January. Again, it is worth completing the return two weeks or so in advance just to make sure everything has been submitted OK. You can save the submission in stages as you go, so it does not all have to be done at once, which is a lot more user friendly.

If you do not send in your return on time, your company will be fined. For instance:

• 1 day late = £100 penalty
• More than 1 day late (Max 3 months) = You will be charged £10 per day for a maximum of 3 months, which could add up to £900. Plus the 1 day late fine of £100.
• More than 3 months late (Max 6 months) = An additional £300 charge or 5% of the amount of tax you owe. Plus the other two fines above.
• More than 6 months (Max 12 months) = An additional £300 charge or 5% of the amount of tax you owe. Plus the other three fines above. You may even be asked to pay a fine of 100% of the tax you already owe!

In some severe cases, the fines can be even more extreme so it is well worth making the effort to submit your company’s tax return on time.

Featured images:

• License: Creative Commons image source

James writes for Modern Accountancy. When not writing, he can often be found avoiding paying tax penalties.

 

 

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