Many of the UK’s top politicians have been rushing over each other to release their tax returns in recent weeks. But in addition to revealing Boris Johnson’s impressive self-employment income and David Cameron’s expenses, these documents have also highlighted another important piece of information – Labour leader Jeremy Corbyn was fined £100 for filing his most recent tax return late.
The leader of the opposition isn’t alone: HMRC estimates that around a million people fail to file their self-assessment before the 31 January deadline passes every year. So are there any steps that Corbyn and the other people who received a penalty do to avoid making the same mistake next time?
Your tax return is for the tax year ending 6 April 2016, which at this point is only just a few weeks ago. That means the information you need to include in it should still be relatively fresh in your mind, and you’ve not got a looming deadline to worry about or rush towards.
However, the longer you leave it to file your tax return, the more likely it is that you will forget to include something – such as interest on a particular bank account – or enter incorrect figures, especially if you’re frantically trying to pull everything together before the 31 January deadline arrives.
Remember that you can also re-submit your tax return for no additional charge if you discover errors in the future – so if you file now, you can still do a final double-check well before the deadline, and still have time to make any final amends. And filing early is also potentially good news from a tax point of view, because if your tax and class 4 NI liability for 2015/16 is less than your liability for 2014/15 was, then you may be able to reduce your 31st July 2016 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.
Find an accountant
There are lots of potential pitfalls that you may not be aware of when it comes to self-assessment. So unless your business is the very simplest and smallest of sole trades, and you have no other income such as income from a job or property – or unless you are 100 per cent confident of preparing your tax return correctly yourself – it is a good idea to ask an accountant to help you prepare or check your tax return.
This is also a great time of year to find an accountant. They are generally less busy than they are during the run-up to tax return season (where many of them also charge an extra premium to new clients who join them at that time) and that means you’ll be able to really do your research to find the one who best fits your business.
Remember, it’s a good idea to find an accountant that you feel comfortable with and who understands your business – not just so you can get your tax return completed, but also so you can establish a sound long-term business relationship with them.
Improve your processes
If last year’s tax return was a nightmare to complete, take a look at your internal processes and see where the pain points are. For example, you may have spent January pulling together all of those fiddly expense receipts out of that shoebox or box file you kept them in. Or raiding through your filing cabinet to find all of the important paperwork that you needed.
Self-assessment shouldn’t be that stressful. Make it your new tax year resolution to always collect and file every important document as soon as you receive it, and you make sure you have a robust filing system in place where everything is easily locatable.
Furthermore, you should also look at improving your wider bookkeeping system. A major reason why small business owners end up spending January desperately trying to work out how much money they’ve made and how much tax they owe is because they don’t properly manage their books. Create a routine and use a regular time every week 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.
You may also discover that you could you benefit from dedicated invoicing or accounting software. If, for example, you find it difficult to keep on top of your business cash flow, perhaps you’ll benefit from using a system that enables 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? 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.
Emily Coltman is chief accountant to FreeAgent, which provides cloud accounting software for freelancers, contractors and micro-businesses.
Have a look at the funniest excuses HMRC have ever had for filing late tax returns.
Sign up to our newsletter to get the latest from Business Advice.