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The self-assessment New Year hangover

December 19, 2011

It’s okay to have a hangover on New Year’s Day but don’t let the suffering continue into the year. January 31st has always been a key date in the small business calendar – it marks the deadline for submitting online tax returns.

All too often, small business owners allow the date to run away with them and end up leaving it until the last minute. This can be a costly mistake because of the additional penalties introduced by HMRC on April 6th 2011. Small businesses who fail to meet the deadline can expect to face a fixed fine of £100 for being just one day late.

If bookkeeping is a continuous drag for you, it’s likely that the January 31st deadline will involve the usual mad rush to get your finances in order, in time. To make sure taxes don’t leave a lingering headache in the future here are some tips to take the pain away:

Start planning now

To make future tax deadlines easier to deal with. To quote HMRC guidance, “You must keep records of all your business transactions”.

There are several key dates and deadlines that small businesses need to be aware of throughout the year. Pop these in the diary now and set advance reminders to ensure future deadlines don’t come as a surprise.

Make bookkeeping a priority for your business

While financial management typically falls pretty low down on a small business owner’s agenda, it is worth noting that it is more than just a legal requirement – it can make or break your business.

Getting into and keeping up good book-keeping habits is crucial to both meeting HRMC compliance standards and deadlines, but also key to running a successful business.

According to a recent Intuit report entitled, “The Three Year Glitch”, more than one in five small businesses still rely on pen and paper accounting. As a consequence of their lack of organisation throughout the year, nearly a third of UK start-ups have made mistakes with HMRC and one in ten of businesses operating less than five years ran out of cash.

Let software do the hard work for you

As well as setting aside dedicated time each week to review and update the books, small business owners should consider using accounting software such as FreeAgent or QuickBooks.

This will not only to help you track expenses in real-time and manage cash flow, but means that should HMRC come to your door, you have all the necessary records at hand to comply with tax obligations.

Making the 31 January self assessment tax deadline

Of course, you can still make the Jan 31st deadline – here’s what you need to know:

1. Firstly, it’s worth nothing that if you are planning to send in a paper tax return, you’ve already missed the October 31st deadline. You should now submit your tax return online by January 31st instead.

2. Your online tax return must reach HMRC by midnight on January 31st – without fail!

If you haven’t sent an online tax return before, you need to register for HMRC Online Services by January 21st at the very latest. This will allow HMRC time to send your Activation Code.

3. If you have relatively straightforward tax affairs and already pay tax through PAYE (Pay As You Earn) you probably won’t need to complete a tax return. But if you have more complicated tax affairs – or income from several sources – you may need to complete one.

Our guide on, Who needs to complete a self assessment tax return? explains in more detail exactly who needs to submit a tax return.

If you’re still unsure whether you need to complete a tax return, you can check with HRMC online here.

4. The penalties for late returns are pretty steep and the longer you delay, the more you’ll have to pay:

  • 1 day late: A fixed penalty of £100. This applies even if you have no tax to pay or have paid the tax you owe.
  • 3 months late: £10 for each following day – up to 90 days, maximum £900. This is as well as the fixed penalty above.
  • 6 months late: £300, or 5% of the tax due, whichever is the higher. This is as well as the penalties above.
  • 12 months late: £300, or 5% of the tax due, whichever is the higher. In serious cases you may be asked to pay up to 100% of the tax due instead. These are as well as the penalties above.

More Information

This article was written for Bytestart by Diana Flier, a payroll and compliance expert with over 20 years’ experience in payroll systems and processes. She is a senior compliance analyst at Intuit, a provider of accounting software for small businesses.

These other ByteStart guides have lots more tips and help on accounting and tax matters;

Accounting

Tax