As a small business owner, preparing for tax season can be a stressful time, especially when you are also managing the day-to-day operations. The good news is that with a little forward planning and organisation, tax season doesn’t have to be stressful.
We’ve seen first-hand how proactive preparation can make a huge difference for small and medium-sized businesses. Today, we are going to discuss some essential tips to help you streamline your accounts, ensure compliance and avoid the common mistakes businesses make.
Organise your receipts and expenses
Keeping track of your receipts and expenses is one of the simplest yet most impactful ways to ease the tax preparation process. According the HMRC, a surprising 62% of small business owners experience stress and worry when handling their tax affairs due to the lack of preparation and organisation.
Our tips for staying organised are:
- Digitise your receipts by using software like QuickBooks, Xero or Expensify. HMRC accepts digital copies of your receipts so there’s no need to hold on to the paper copies.
- Categorise your expenses on a regular basis. Separate travel costs, office supplies and client-related expenses. This will make it easier to calculate deductions later.
- Save everything in the Cloud like Google Drive or Dropbox to ensure you can access the documents whenever you need them.
Stay on top of VAT returns and deadlines
If your business is VAT registered, then you must stay on top of VAT returns and the deadlines. Missing these deadlines can lead to penalties which depending on your business’s turnover can be quite substantial. According to HMRC data, over 20% of businesses incur VAT penalties annually, mainly due to missed deadlines and incorrect submissions.
Our tips for VAT best practices:
- Using Making Tax Digital (MTD)-compliant software. Since April 2022, all VAT-registered businesses in the UK are required to use MTD-compliant software. Platforms like Xero and FreeAgent make VAT calculations and submissions straightforward.
- Set up reminders for upcoming VAT deadlines to save you from unnecessary fees.
- Review VAT exemptions. Some products and services are exempt or zero-rated for VAT. Regularly review these to ensure you are not overpaying on your VAT obligations.
Understand What Allowable Expenses and Deductions Are
Claiming all allowable expense can lower your taxable income and reduce your overall tax bill. According to recent research, around 30% of small business owners in the UK miss out on potential deductions each year simply because they aren’t aware of them.
Our tips on Allowable Expenses:
- Office supplies and utilities: This includes rent, heating and electricity for business premises. If you work from home, you can also claim a portion of household expenses.
- Travel expenses: Business-related travel such as public transport, mileage and accommodation can all be claimed but keep personal and business travel separate.
- Professional fees and insurance: Fees for accountants, solicitors and other professional services as well as business insurance are deductible.
- Marketing and advertising: Cost for promoting your business including social media ads and website hosting are allowable expenses.
Top tip: Keep your records of each expense and ensure you have documentation to back it up in case of an HMRC enquiry. Using accounting software can simplify the process by tracking expenses and auto-categorising them for you.
Investigate the benefits of an Accountant
Working with a professional accountant or bookkeeper, like us can be invaluable. In fact, research by the Federation of Small Businesses shows that business owners who work with an accountant experience a 15% higher rate of compliance with HMRC regulations compared to those who go it alone.
Our tips for using an accountant:
- They can identify tax-saving opportunities. They stay updated on tax legislation changes and can help you claim all allowable expenses ensuring you don’t miss out on deductions.
- By using an accountant, you will reduce the risk of errors and ensure your accounts are compliant with the latest tax regulations.
- Save time and reduce stress by outsourcing your tax preparation. You can then free up time to spend growing your business instead of worrying about tax deadlines.
Set Aside Funds for Tax Payments
One of the simplest ways to avoid stress when it comes to the tax season is to prepare early and ensure you have the funds set aside to cover your tax obligations. According to a survey by Tide, nearly 40% of small business owners in the UK feel unprepared for tax season and often struggle to make their tax payments on time.
Our tips for preparing early:
- Estimate your tax obligations quarterly and set aside funds. This is especially helpful for self-assessment payments due in January and July.
- Regularly review your business accounts quarterly so you can ensure your records are accurate.
- Don’t wait until the tax deadline, start early which will avoid the rush.
Taking Advantage of Technology
Technology has transformed tax preparation, making it easier for you to stay organised and compliant. From expense-tracking apps to digital invoicing, technology can save you time and reduce costly mistakes.
Our tips for tools to help you during tax season:
- Software such as QuickBooks, Xero and FreeAgent offer tools to track income, expenses and VAT.
- Expensify and Receipt Bank allow you to snap photos of your receipts and categorise your expenses.
- Asana and Trello can help you keep track of tax deadlines and other important financial tasks.
According to Intuit, small businesses that use digital accounting software are 40% less likely to experience tax-related issues than those relying solely on manual records.
By staying organised in the run up to tax season you can make it a less stressful experience. Working with an accountant or bookkeeper can also provide you with peace of mind, knowing your accounts are accurate and compliant.
If you would like to discuss your tax preparation and find out more about how we can support you, please get in touch.
Sources:
- Federation of Small Businesses–Common Deductions Missed by Small Businesses, FSB, 2022.
- HMRC–VAT Penalties for UK Businesses, HMRC, 2023
- Tide–Tax Preparation Challenges for UK Small Businesses, Tide,2023.
- Intuit UK–The Impact of Digital Accounting on Small Business Tax Compliance,Intuit, 2023.