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- 23 Apr 2024
How can I be one step ahead of my finances this year?
- 05 Jan 2022
This blog is just one of many resources IPSE provides for those seeking guidance and support on tax as a self-employed person.
To find it all in one place, visit our Self-Employed Tax advice page.
Self-Employed Tax
Every year we are met with a flurry of clients in a mad rush to meet their tax return deadlines, frustrated that they can’t find the right information and sadly sometimes miss submission dates because of this, resulting in financial penalties. By making some small changes throughout the year, you can save yourself a lot of time and worry.
We at Integro Accounting breakdown some helpful tips and advice on keeping ahead of your finances.
Keep your invoices and expenses updated regularly
Any good accountant will advise you to take charge of your invoices and company expenses on a regular basis. We recommend managing your bookkeeping monthly. Not only does this guarantee you know what cash is coming in and going out, but also what funds are available to you from your company bank account.
Without up-to-date figures, you risk thinking there are more funds in your account than what is really available to you. Even the best accountant can’t advise on what is owed to the tax man so far, and what money is most tax efficient to withdraw through salary and dividends without accurate figures. There is a very real danger that without clear figures, you could take out too much, resulting in a nasty surprise down the line.
If your accountant can’t complete accurate tax planning for you, then they can’t advise you to their best ability and you’ll miss out.
Also, we strongly advise that you take advantage of bookkeeping software tools such as FreeAgent (the cloud accounting software favoured by Integro Accounting). It allows you to upload receipts easily whether that’s on your phone or laptop and allows you to set reminders which prompt you on when to upload - or even chase - invoices.
Know what you can and cannot claim through your business
This may seem an obvious recommendation, however by including incorrect expenses that are not deemed ‘wholly and exclusively for the purpose of your business’ you will be faced with further questioning and will raise alarm bells to not only your accountant, but very likely HMRC. All incorrect or unanswered expenses will need to be defended against those claimed.
If you are unsure on what you can claim, then speak to your accountant - equally they will make sure that you aren’t missing out on areas that aren’t so clear as to how to claim on.
It may not surprise you that in 2021 there was a huge increase in enquiries received regarding health and wellbeing products, so we’ve included here a few company expenses that you may not be aware that you can claim through your company:
- Eye tests and glasses: for this to be a legitimate claim they need to be prescribed for use during your work time, namely for ‘monitor or screen work’.
If you also wear them out of work, they won’t be considered just for business use but you may have a pair for work and a pair for home in which case you can claim the work pair. Likewise, if you have an eye test relating to the use of visual display equipment at work you can claim this as an expense.
- Working from home allowance: you may be able to claim relief for the additional household costs you’ll incur when working from home. This might include:
- Gas and electricity
- Metered water
- Business phone calls
- Internet
You can either claim relief on £6 a week (you don’t need any evidence of your extra cost for this) the exact amount of extra costs you’ve incurred above the weekly amount if you have evidence such as receipts and bills.
- Annual event allowance (previously the Christmas allowance): that the annual event allowance can now be used throughout the financial year and not just for a Christmas party. You can spend no more than £150 per person (including partners) including VAT. Given the current circumstances you may be holding a ‘virtual’ event this year and that’s fine – if you don’t go over the spending amount of £150 per person.
Are there any special offers ending? Check out banking fees and insurance dates
Many companies will offer you introductory fees that don’t last after the first tax year. It’s a small thing, but by making sure you keep a note of when these are ending will avoid you incurring unnecessary costs. If you are aware of the dates you can switch to maximise on the available savings.
Be aware that sending your details last minute could have a negative impact
A good accountant will always work in your best interest. However, by sending company details and figures, with only days to spare, before a deadline. . . or finally adding three months’ worth of details at the last minute does not give them ample time to review everything effectively
What’s more, you’ll have less notice of the tax you owe which is never a good thing! Accountants can have further questions that may need some research and some back and forth… and while no accountant wants a late fee for any of their clients, they can’t know everything. They are only working with the information provided. Therefore, it is so important to include all information you feel will have an impact on your final tax figure - such as investments, rental properties, etc. to be able to give the most beneficial advice.
Also allow yourself plenty of time to review your tax return! At Integro Accounting, we always allow ample time for clients to review and question anything before we submit it, and this isn’t a process that should be done in a rush as that’s when clients can overlook things. Nothing will be submitted until approved by our client, so bear that in mind.
Be aware of your tax deadlines and penalties
It goes without saying that any good accountant will advise you as to when your tax returns are due, but make sure you are also aware of these dates – this will give yourself plenty of time to collate and upload all the necessary information without incurring unnecessary stress!
Let’s run through the deadlines you need to be aware of, their associated fines and if anything will change in 2022:
Annual Accounts
Deadline: Every year on the anniversary of the previous financial year and you need to file your annual accounts nine months after your company’s financial year ends.
Late fees:
Up to 1 month late: £150
1 to 3 months late: £375
3 to 6 months: £750
More than 6 months: £1,500
If your accounts are late two years in a row the penalty is doubled so it’s really in your best interest to make sure that doesn’t happen.
Changes for 2022: Currently there is no indication that these fees will change in 2022.
Company tax return
Deadline: The deadline for filing your company tax return is 12 months after the end of your company’s Corporation Tax accounting period. Payment is due nine months and one day after your accounting period (your accounting period is usually the same as your financial year). If your company’s taxable profits are greater than £1.5 million, Corporation Tax will be paid in four quarterly instalments.
Late fees:
1 day late: £100
3 months late: A further £100
6 months late: HMRC will estimate your Corporation Tax bill and add a penalty of 10% to the unpaid tax
12 months late: A further 10% of the unpaid tax.
Furthermore, if your tax return is late three times running, the penalties of £100 are increased to £500 each. Once your tax return is six months late, HMRC will determine how much Corporation Tax they think you owe (this is called ‘tax determination’) and that is the amount you must pay.
Changes for 2022: Currently there is no indication that these fees will change in 2022.
Self Assessment personal tax return
Deadline: These need to be submitted by 31st of January every year in regard to tax owed for the previous year.
Late fees: If you don’t meet the 31st January deadline for your self-assessment tax return, the current late filing penalties are:
Missed deadline: automatic £100 fine
3 months late: £10 daily penalty for up to 90 days
6 months late: 5% of tax due or £300 (whichever is the greater amount)
12 months late: a further 5% of tax due or £300 (whichever is the greater amount)
It’s important to note here that the automatic penalty of £100 is applied even if you don’t owe any tax, the very first day you are late in submitting.
Changes for 2022: In 2022 the government is looking to introduce a points system rather than immediate fines.
Under the new system, you will incur a certain number of points for missing the date for filing your tax return which will make it fairer such that only the small minority who keep missing their submissions will be penalised rather than those who make the odd error. For a missed deadline you will receive one point. Once two points are reached regarding Annual accounts you will be given a fine. If you then meet your obligations on time for a 24-month period your points will be removed.
Company VAT
Deadline: The penalties for paying late, particularly if you miss multiple deadlines, are becoming increasingly strict. They usually fall on the same day which is 1 calendar month and 7 days after the end of each VAT accounting period.
Late fees: Currently, you can enter a 12 month ‘surcharge period’ if you pay late, but if you default again during this time:
- The surcharge period is extended by another 12 months
- You might have to pay an extra amount in addition to the VAT you already owe
However, even though you submit a late return you won’t have to pay a surcharge if:
- You pay your VAT in full by the deadline
- Don’t have any tax to pay
- You are due a VAT repayment
Changes for 2022: Penalty fees for late VAT returns will also be changing to the points system outlined above (see Self Assessment Personal Tax Return) in 2022.
PAYE
Deadline: If you pay PAYE monthly it must be paid by the 22nd of the next tax month. If quarterly, the 22nd after the end of the quarter. For example, for the April to July quarter it must be paid by 22nd July.
Late fees: The first failure to pay on time in a tax year doesn’t count as a default but following that, the following fees currently apply in a given tax year:
1 to 3 defaults: 1% applied to the amount that is late in the relevant tax month
4 to 6 defaults: 2% applied to the amount that is late in the relevant tax month
7 to 9 defaults: 3% applied to the amount that is late in the relevant tax month
10 or more defaults: 4% applied to the amount that is late in the relevant tax month
Daily interest will continue to build up until payment is made. You’ll also be charged a late payment penalty if less is paid than what is due. After 6 months, if payment hasn’t been made in full, an additional 5% of the amounts unpaid will be charged, and the same after 12 months. It’s important to note that these additional penalties do apply even if only one payment is late in the tax year.
Changes for 2022: Currently there is no indication that these fees will change in 2022.
Understand that ignoring HMRC ALWAYS makes things worse!
This point can’t be emphasised enough… if you have any problems with payments speak to HMRC. It’s the difference between possibly setting up a payment plan and incurring unnecessary fines. If you have made a genuine mistake, please don’t ignore it, let them know, that way you’ve done everything you can. If you wait for them to bring it to you, the chances are you’ll already be incurring fines. If you are struggling to make payments, HMRC offer a Time To Pay arrangement to help make payments with ease.
If you're an IPSE member, don't forget that you also have access to the tax and legal helplines.
We hope this has helped! And we are here to help.
Make 2022 the most organised year for your business yet. That way you’ll know what you’re dealing with, avoid any fines… and feel pretty pleased with yourself! As ever, if you have any queries about your accounts speak to your accountant for advice. At Integro Accounting (where you pay a fixed fee) you can ask as many questions as you like to ensure you have peace of mind, feeling safe in the knowledge that you and your accountant are working in tandem. A special discount is also available to all IPSE members.
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