With a new tax year in the UK now underway, many business owners are starting to look at how they can improve the way they work over the months ahead.
So if you’re considering making a few changes to help your business over the next year, here are a few ideas to consider from Emily Coltman FCA, chief accountant at FreeAgent – who provide award winning cloud accounting software for freelancers, micro-businesses and their accountants – that could give your business a fresh start.
Manage your expenses better
Expenses are a common area where micro-business owners make mistakes in their accounts. Many people try to record expenses that they’re not allowed to, or miss out expenses that are allowable, or just don’t bother with the ones they think are too small, fiddly or time-consuming. And many business owners also lose their expense receipts or just forget about them until it’s too late to include them in their tax return.
There are very few micro-business owners who claim every single expense that they should – and we’ve found that many of them won’t claim an expense if it’s worth less than £10, because they think it’s too much bother to do so. But if you project those unclaimed expenses across the UK’s five million micro-businesses, they potentially equate to hundreds of millions of pounds.
So if this is an area you’re not too hot on just now, use the new tax year as an opportunity to brush up your expense management processes. Make sure you have an easy, user-friendly system in place for logging and explaining business expenses, as well as making sure you record your expenses as soon as you spend the money. If you let those receipts stack up, you’ll face a tougher task managing them when your tax return is due. And don’t dismiss the smaller expenses either – they can quickly add up and if you don’t claim for them, you could pay more tax than you’d otherwise need to!
Look at your eligibility for the Employment Allowance
For those unfamiliar with the Employment Allowance, it is a reduction in employer’s National Insurance that was first introduced in 2014. It was originally set at £2,000 for most employers, but since 6th April 2016 the allowance has increased to £3,000 and limited companies who only have one director and no other employees are no longer eligible.
This means that even if your company was eligible for the Employment Allowance in previous years, it may now no longer be. If you’re unsure, check out the guidance from gov.uk on excluded companies, get up to speed with all of the current rules and find out whether your business will qualify (or continue to qualify) for the Employment Allowance.
Check if you need to register for VAT
On 1st April 2017, the threshold for when you have to register for VAT changed from £83,000 to £85,000, and the de-registration threshold changed from £81,000 to £83,000.
This means that if your business makes VATable sales of £85,000 or more during any rolling 12-month period you will have to register it for VAT. And if you are already currently registered for VAT, you will be able to de-register when your business makes sales of £83,000 or less during any 12-month period (and you’re confident that this will continue to be the case in the following 12-month period).
If you find that you do need to start thinking about registering your business soon but you’re unsure about how to do this, you should ask your accountant for help.
Get your business inspection-ready
When you’re running a business, it’s important to keep a tidy, up-to-date set of books. This doesn’t just make it easier for you to stay on top of your finances; it also keeps HMRC happy. And that makes things easier if you’re ever flagged for inspection.
Make sure you stay on top of your day-to-day bookkeeping, avoid making basic mistakes in your accounts, keep your records tidy and always file your tax returns on time in order to stay on the right side of HMRC. That way, you’ll ensure that your business is always ready for a visit from the taxman.
Prepare for digital tax
Making Tax Digital (MTD) is the government’s ambitious plan to digitise tax for UK businesses by 2020. Under the scheme, instead of submitting a yearly tax return, most self-employed taxpayers will be obliged to update HMRC at least four times a year in ‘real time’ about their business finances through some form of digital tax software.
A consultation response has been published and legislation is currently being drafted with an announcement expected before the end of the year. A beta for the initiative is imminent and in April 2018 MTD will begin for sole traders with annual sales over the VAT threshold. Then, in 2019 MTD will kick in for sole traders with annual sales between the minimum MTD threshold of £10,000 and the VAT threshold.
It’s therefore a good idea to start thinking now about how your business will deal with digital tax. Explore some of the digital accounting software options currently available and see how they are planning to help customers with the switch. It’s much better to do the groundwork now, so you’re prepared for the new legislation rather than risk being caught out at the last moment!
About the author
Emily Coltman FCA is chief accountant at FreeAgent, who provide award winning cloud accounting software for freelancers, micro-businesses and their accountants.