Don't mention that date!
Surely you can't be talking about it aleady…the Big Day is starting to appear everywhere I look.
I’ve spotted “the magic date” posters and those “countdown” internet posts already. However much we might try to pretend that it’s ages away, there’s always something to remind us that it’s coming. It seems ridiculous because the nights haven’t fully drawn in and we’ve not even been through Bonfire Night and Halloween. Surely we can pretend that it’s not happening just for a little bit longer.
Of course, for entrepreneurs, the big day doesn’t happen in December. It’s 31 January that looms large on the horizon. That’s the day when we turn from the joys of carols and presents to sounding like Scrooge himself. We forget about the blessings of our business profits and we dwell on the gloom of the resulting tax payments.
So how best to avoid this bleak start to a new year? Of course, the best thing is to take action NOW. Here’s 5 steps to help you through:
1. Check if you need to file a self-assessment return. For example, you’ll probably need to do one if your self-employed income was over £1,000 for the tax year or if you are a company director. Also check out the requirements if you rent out property or hold other investments.
2. Make sure you are registered for making the return and please don’t leave this until the last minute. If you are self-employed, you need to register with HMRC by 5 October in your business’s second tax year (and watch because you could be fined if you don’t do this).
3. Gather up your information which sounds easy but always takes up time. You’ll clearly need details of your business income and spend (not too bad if you use good accounts software) but you will also have to give details of any other income that you have. You might need to give details of child benefit received or gift aid payments made.
4. Consider the reliefs, allowances and expenses that can mitigate your tax liability. I’m a big advocate of the philosophy that paying tax is a signal of a healthy and thriving business but you really don’t need to overpay; It’s all about paying the fair rate of tax. If in doubt seek professional help from an accountant who can helpl you understand what you are entitled to.
5. Plan for the payments. Ideally you will have been putting a percentage of your income aside as you have earned it but, if not, the sooner that you know the damage, the more time you have to plan for the cash outflow. The tax needs settled by 31 January and, if your bill is over £1,000, you’ll also be asked to make a “payment on account” towards next year. As the balancing payment and the first payment on account are made at the same time this can be significant.
So take control and avoid the denial. It’s time to get on top of those finances. That way you’ll know that everything is in order, you will have a plan and then you can sit back and enjoy the arrival of the big man in the red suit.