Starting your own business is an exciting time, but it can also be fraught with uncertainty. Most business owners would like to get on with running their business, but keeping track of finances is crucial. Not doing so can significantly affect your finances and could spell the end of your new venture.
However, a bit of research and extra preparation will go a long way when starting a new business, saving you stress down the road and maybe even some cash. Let’s take a look at a few simple tips and tricks can help you stay on top of it, allowing your business to thrive.
Registering Your Business
In order to run your business legitimately, you need to register it with HM Revenue and Customs (HMRC). This will inform the government that you’re responsible for filing your own tax returns. The Gov UK website makes the process easy, whether you’re registering as a sole trader (you run your business independently, such as if you’re a freelancer) or if you’re a “nominated partner” in a partnership. If you’re taking on staff, you can also register for PAYE (pay as you earn), which allows you to send payroll reports to HMRC and access tax codes and notices (relating to student loans, for example). It’s important to make this a high priority, as it can take up to twenty working days to complete the registration process.
What Are Tax Returns, and When Are They Due?
Tax returns are processed by HMRC so that they can collect income tax, which is a small amount of your wages. If you’ve been employed by a company (and have signed an employee contract), then you may not have any experience of tax returns, as tax is usually automatically deducted from your income. While basic-rate taxpayers pay 20% tax on income up to £31,785, missing a tax return, filing late, or not completing a return accurately can incur significant penalties and charges, which can be devastating for any business.
The deadline for filing your return will depend on how you choose to submit it. Paper returns must be sent off by midnight on the 31st October, whereas online returns can be filed up to the 31st January (the same date you’ll need to pay your tax).
What Do I Need to Include?
Filing a tax return involves keeping an accurate record of all your income and any expenses relating to your business. This might include software you need to run your business and any bills, such as electric or broadband. This makes a tax return easier to complete, and will prevent the chance that you’ll run into trouble with HMRC if they decide to query your claim and launch an investigation.
Tax-Deductible Expenses
Tax-deductible expenses are purchases you’ve made relating directly to your business that can be deducted from your total profit.
If, for example, you spend some of your profit on a new computer for your business, you’ll be able to deduct this amount from your profit. The amount of income you pay tax on (known as taxable profit) will be reduced, meaning you’ll pay less tax. Tax-deductible expenses include a portion of your household bills (if you run your business from home), costs for stationery, raw materials or travel costs (if your business involves driving around and visiting others).
In order to best keep track of your expenses and receipts, it’s advisable to have a clear system. Whether that’s accurately filing away all your receipts into a folder system, recording digital copies, or using a dedicated accountancy software client, having a specific method for accurately recording your receipts will save you stress in the long run.
Is It Worth Employing an Accountant?
While there’s help available from HMRC for filing your tax returns, for many, the forms are too complex to understand and the guidance notes are confusing at best. In addition to this, virtually every year, changes are made to the process, making it difficult for taxpayers who want to focus on running their business to keep on top of the landscape.
The forms you’ll need to fill in will depend on your circumstances. For example, if you’re only freelancing on the side, you’ll need to fill in a different form than if you were running your business full-time. An accountant can help you identify and fill out the form that’s appropriate for you.
What an Accountant Can’t Do
An accountant can help you develop a system or recommend a method for keeping records of your receipts and expenses. However, they can’t do it for you. It’s your job to be vigilant throughout the entire year, making records as you go, so that you aren’t scrambling to get organised when it comes to filing your all important return.
When you’ve just started your own business, your primary concern is to enjoy your achievement and focus on doing what you set out to do. However, as we’ve seen, your tax returns should also be a priority. Whether you opt to do it yourself or get the advice of an accountancy firm, filing your tax returns efficiently and accurately can ensure your business is exactly what you want it to be: a success.
