How to prepare your business for the new tax year

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We’re approaching the start of another tax year. And while this particular calendar event is unlikely to get too many hearts racing (unless you’re an accountant), the run up to April 5th is still a great time to get your business affairs in order.

Self-employed people have to file their tax returns in line with these timings, and many limited companies also find it easier to align their financial year with the tax year. There’s a lot of admin to get through, and putting it off will only lead to a bigger headache later in the year.

Let’s take a look at the key things you need to consider as we transition from 2020/21 to 2021/22.

Look back to go forwards

First and foremost, you need to be sure that you’ve finished the current year correctly. If you haven’t been keeping on top of your books throughout the year, you’ve got a few weeks to bring your invoices, statements, expenses and other crucial paperwork up to date. It’s worth doing as soon as you can, while the information is still fresh in your memory.

You’ll also need to process your year-end payroll and report it to HMRC by April 19th, and all current employees will need issuing with P60s by May 31st. It’s normally straightforward stuff for whoever is in charge of your accounts, but be mindful of the potential for unexpected complications this year, given that so many of us are stuck working from home. Capturing overtime and expenses from employees could be a stumbling block if you aren’t on the case ahead of time. 

Is it time to retire the old spreadsheet?

When you’re just starting out, spreadsheets make great business management tools. We use them to track our invoices, earnings and expenses and calculate how much tax we’ll need to set aside. 

But as you grow and your business operations become more complicated, the limitations of spreadsheets start to emerge. Ask yourself the question: “Am I spending more than an hour a week on bookkeeping?” If the answer is yes, perhaps it’s time you invested in dedicated accounting or business management software, ready for the new tax year.

Could you benefit from an accountant?

Similarly, while many self-employed professionals are happy to manage their tax affairs themselves, if you’re a limited company or your self-employed business is growing rapidly, it might be a good idea to employ a professional accountant. 

For a (usually) modest fee, they’ll take on the burden of tax returns to make sure you meet the HMRC deadlines – October 31st for paper returns and January 31st for online. Not only that, but they’ll be on hand to provide expert advice as you grow, which could help you save money in the long run. 

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Salary planning

Every new tax year brings a raft of changes to how you calculate employees’ take-home pay. The one that affects pretty much everyone is the personal tax allowance threshold, which is rising to £12,570 in April. In addition, the National Living Wage is increasing to £8.91 an hour, with 23-24 year-olds included in this wage bracket for the first time. 

Then there’s the student loan repayments threshold to take into account, which will rise to £19,895 for any of your employees with an income-contingent loan. 

Remember that defining your strategy for paying employees (and paying yourself!) in advance of the new tax year is a helpful way to keep your tax burden down. For example, there are tax-free allowances on dividends payments available to you each year. And, by operating a set salary across your company for the entire tax year, it will be easier for your employees to benefit from personal tax allowances.

VAT returns and Making Tax Digital

If you’re VAT-registered, this is a great time to take a look at whether you’re collecting and paying VAT in the best way for your business. 

For example, some small businesses prefer to use the VAT Flat Rate Scheme rather than the standard scheme. This is handy if your business regularly buys and sells goods within the UK, but it isn’t always advisable for services businesses or companies that import and export goods.

It’s also worth bearing in mind that the ‘soft landing’ period for Making Tax Digital ends on April 1st. If you’re registered on Making Tax Digital – and most businesses are – you’ll need your software systems to be fully connected to HMRC by this date.

Before April 5th, it’s a good idea to check:

  • If your business is eligible for an Employment Allowance to reduce your National Insurance liability

  • Your employees are all on the correct tax codes – HMRC will usually contact you if a change is needed

  • That you’ve logged every last expense, receipt and transaction, so your business running costs are recorded as accurately as possible

Finally, to avoid one of those classic forehead-slapping moments, make sure you know your HMRC login details. Otherwise, for all of your prep work, come April 5th you’ll still find yourself stuck on the phone to the tax collector.

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