Post sponsored by Purple Lime
There are only two things that are certain in this world – death and taxes. And since we are not funeral directors, you can probably guess that today we want to talk about taxes. Tax for businesses is always a complex topic, and one not many business owners want to think about. But think about it you must, because no matter what shape or size your business is, you will need to submit tax returns to HMRC, and pay any tax you owe. As part of our series of educational talks, we have put together a few topics and tips on tax for you to read about, along with some advice for moving forward.
Value Added Tax
If your business generates more than a certain amount of revenue during a 12-month period, then you will need to register for VAT. The threshold for registration changes every year, and for the 2020/2021 tax year it is £85,000. Some businesses choose to register before they are anywhere near the threshold, because of one of the following advantages:
You can reclaim VAT paid for business purposes. Business supplies, like computers, desks and so on, may have VAT applied to them, that you as the customer have to pay at the time of purchase. But if you are VAT registered, then you can reclaim this input VAT from the government when you file your returns.
It looks more professional. Being VAT registered makes you look bigger and more professional to other businesses, so if you target bigger businesses, then this can be beneficial.
However, some businesses will leave it until they absolutely have to register, because of these reasons:
You will have to charge more. You will be required to add VAT to your prices. This could increase the cost of your goods and services to customers who are not VAT registered themselves, and potentially inflate your prices compared to competitors who are not VAT registered, however, if your customers are also VAT registered, then they will also claim that input VAT back. It is therefore important to consider your customer base when making this decision.
More accounting. There is slightly more paperwork involved in your accounts when you are VAT registered, including a quarterly VAT return.
The trick is making sure you register at the right time for your business and choose the right scheme. You will also need to understand the new Making Tax Digital rules – which we have talked more about in this blog.
3 Common Mistakes to Avoid
Of course, tax is a very complicated subject, and even accountants need to call HMRC to ask for clarification on occasion. So, it is perfectly understandable that business owners make the occasional mistake. In fact, every year tens of thousands of UK individuals make tax mistakes, from paying too little to paying too much, or failing to take advantage of the benefits available to them. That being said, there are 3 very common mistakes we see cropping up time and time again, which are:
Not keeping proper records. Good record keeping is the foundation of good accounting practice and a successful business. Many businesses start out with boxes full of receipts, but it is all too easy to miss things without a system. Not only does this mean that you could essentially be throwing away money you could be claiming from your business, but one too many missing receipts could trigger an enquiry from HMRC – which nobody wants! A cloud-based accounting solution can solve this issue, providing a paperless, secure and reliable solution to record keeping.
Missing PAYE or VAT payments. Missing your payments, or paying behind schedule, can cause some pretty big issues for your business. Not only can it impact your cash flow but missing the deadline for VAT or PAYE payments can leave you open to penalties from HMRC. The more serious the default, the more attention you draw from HMRC. Depending on how behind the schedule you are, you could be pursued for your tax arrears or even receive a winding up petition. Needless to say, this is a mistake you don’t want to make!
Not owning up to mistakes. Everyone makes mistakes, including business owners. If you go through your old records and notice that you have made a mistake, it is important to own up to it. Specifically, you need to notify HMRC. By law, HMRC can only impose penalties when your business knowingly makes a mistake or unknowingly behaves negligently. Failing to rectify a tax mistake you made accidentally but noticed later falls into that category. So, if you notice a mistake, make sure you let HMRC know right away – and they will be more lenient with you, or even give you more time to rectify the mistake.
If you would like to know more about tax for your business, the team at Purple Lime are happy to help. We have experts in-house who can guide you through every step of business taxes, and support you moving forward to ensure no mistakes are made. To book your free consultation email email@example.com or call us on 01249 691360.