Keeping up with tax payments and HMRC reporting requirements can seem like a mammoth task, with disorganisation often being cited as the reason why payments are missed. HMRC are very quick to respond when businesses pay late, so it’s worth taking the time to set up a reliable system that reduces the likelihood of being fined.
Follow the steps below and you’ll be better placed to meet your obligations for filing and submission, which will also be of benefit if you encounter financial difficulties in the future.
Having an unblemished record for paying tax is important if you need to negotiate for more time to pay at any point, and also demonstrates that you take your obligations seriously.
Request an HMRC tax calendar
You should be able to obtain a tax calendar from HMRC which includes key deadlines for all forms of business tax, plus the cut-off dates for submission of other reports and returns. It’s easy to forget an important due date when you’re focussed on growing your business, and the tax calendar will provide an overall view of your liabilities across the year.
Include key dates in your own calendar
It’s a good idea to write down all the relevant dates in a desk calendar, as well as using an online version. You can refer to them quickly wherever you are, and plan ahead to allocate working capital.
You can usually synch the information between devices so you don’t have to worry about missing a payment if you’re away, and allow access to the information to colleagues or other directors if necessary.
Set reminders to pay
Set up your smartphone, tablet and office computer to receive staged reminders before a tax payment is due. Some accounting software also lets you schedule reminders to pay, which is useful in coordinating all your financial obligations.
Be aware of penalties
Financial penalties can be severe for late or non-payment of tax, and will increase the longer payment is delayed. HMRC apply penalties and interest to late payments, and it’s worth noting that if a tax return is submitted late, a penalty is applied even if the payment is made on time. Penalties for late payment of self-assessment tax currently stand at 5% of the tax due.
Organising records and receipts
A clear filing and indexing system for paper records is fundamental to paying your tax on time, and without easy access to the necessary supporting documents you won’t be able to complete your tax return accurately.
So how should you organise your paperwork? You could use colour-coding on each file to indicate the type of tax documents inside, or coloured dividers, but clear titles and accuracy when filing documents away are crucial to stay organised.
Save for your tax bill throughout the year
It’s a good idea to spread the cost of your tax bill over the course of a year. If you’re a new business it can be a shock when your first tax bill arrives, as in addition to the bill for the first year, you’ll have to make a payment ‘on account’ for the following year.
This will be half of the first year’s bill, with the balancing payment falling due at the end of July. If you’re not prepared for this it can cause a significant disruption to your cash flow and plans for growth.
You should be able to estimate the amounts that will fall due for various business taxes by using HMRC online tools and calculators, and obtain a clearer idea of your total liability.
Make payments by direct debit
If you have an HMRC online account you can make some tax payments by direct debit. These include corporation tax, VAT, employer PAYE and National Insurance, and self assessment tax.
If you think you will miss a payment deadline, HMRC offer a Budget Payment Plan to some self assessment tax payers. If you’re eligible, you can set up a weekly or monthly direct debit, but the downside of this is you won’t receive any interest on your payments as you would if a savings account was used, albeit at the current low rate.
If you have a tax agent or accountant it’s worth remembering that, although they’ll complete and submit your tax information, as the business owner/director you are responsible for ensuring the accounts present a ‘true and fair view’ of the business.
Written by David Tattersall from Handpicked Accountants. David has wealth of experience in the financial and B2B sectors and excels in connecting business owners with the very best professional services.