October is a month that a lot of us will associate with the coming of autumn and Halloween. For accountants, October serves as a triggering reminder that the looming self-assessment tax return deadline is just 4 months away. Perhaps it’s the darker and earlier nights drawing in which makes us feel like we’re running out of time, or perhaps it’s the trick-or-treaters that remind us that tax nightmares and horror stories can be very real. Either way, we’re taking the opportunity to share with you our top 10 tips to avoid tax fright!
1. It’s always the unknown that can make things scarier than they seem. The first thing you can do to conquer any feelings of dread is to find out exactly what you’re dealing with. That means completing your self-assessment tax return as early as possible (we’re able to help you complete from 6th April onwards!) as this will tell you how much you owe the tax man. Don’t forget that, although they have the same deadline, submitting and paying for your self-assessment tax return are two very different things. There’s nothing to stop you from getting your paperwork down to your accountants, so that they can help you calculate what you’ll owe, and then paying for your tax later on in the year towards the deadline.
2. Following on from the above, our next tip to ward off any foreboding feelings you may have about your tax bill is to start making monthly savings. Once you have found out how much you’ll owe, try breaking up that amount into the months you have left remaining to pay. The earlier you begin saving, the more time you’ll have to accumulate enough by the payment deadline of 31st This will make the payment much more manageable than having to find a lump sum to pay in one go.
3. Take notice of our cover letters to avoid the shock of payments on account. Payments on account are advance payments towards your self-assessment tax return bill. They’re taken twice a year – at the end of July and at the end of January. Although payments on account are not uncommon, not everyone has to make them, so it catches many people out. It’s always wise to read our cover letter carefully as we’ll always warn clients of the tax payments they need to make and when. Find out who needs to make payments on account and how to reduce them to make sure you’re prepared for the additional pre-payment on top of your tax bill come 31st January as well as the second payment due 31st July.
4. Make sure you don’t become a victim to HMRC’s portal crashes. Just when you think you’ll meet the tax return filing deadline and escape the automatic late penalty; you’re faced with the equivalent of an Indiana Jones’ boogie trap – the HMRC website crash. This usually appears due to masses of desperate people all trying to file their tax return at the same time causing the site to become overloaded. You may try turning to HMRC’s phoneline instead for help to explain what’s happening, but you’ll more likely than not end up facing endless hold music, or worse – the line going dead. Our advice to save yourself from the nightmare: get your tax return in before January if possible!
5. Be vigilant of tax scammers. Identity thieves and fraudsters are some of the worst kinds of tricksters, and unlike other ghouls which only come out to play on Halloween, they operate at all times of the year. You’ll be most susceptible to a fraud attack when you’re least expecting it and most vulnerable. Their impact can be devastating and long-lasting as victims try to recover losses and reset all accounts and passwords. Tax scammers are a very real danger and we urge everyone to protect themselves by becoming familiar with common tactics and forms of communications.
6. Keep an eye on your turnover. This applies to both sole traders and limited company directors. HMRC can often seem like the ‘bad guys’. Just when you’re doing well for yourself, they’ll likely issue you with an offer you can’t refuse. Whilst we don’t like to perpetuate that depiction, we do feel it’s important that we make you aware of the rules. You must register for VAT when your turnover reaches £85,000 and failing to do so will result in an automatic minimum penalty of £50. The actual fine is often much higher because it is calculated as a percentage of the VAT due from the date you should have been registered to the date where HMRC become aware that you should be registered. There are also different rates depending on how late you are in registering which are as follows:
- If you register no more than 9 months later than when you should, then the penalty rate is 5% of the VAT due
- If you register more than 9 months late but no more than 18 months late then the penalty rate is 10% of the VAT due
- If you register over 18 months late then the penalty rate is 15% of the VAT due
Our advice is that you may want to register for VAT before you reach that threshold and that for some businesses it can even be beneficial.
7. Is it a trick or treat? This can sometimes be difficult to know when it comes to workplace perks or benefits-in-kind (BIK). Some workplaces will offer employees extra benefits as part of the salary package but not all of them come tax-free. Keep a look out for a copy of a P11D form or even your monthly payslip which will tell you what deductions have been made as a result of receiving a BIK. Before you decline the invitation to the staff Christmas party, you can relax – that one is completely tax-free. Extra fringe benefits which you are likely to be taxed for include; use of a company car or receiving gym membership. Whilst you’ll be charged income tax on the cash value of these, they can still be a bit of a treat as you won’t have to pay employee NI on the value of such taxable BIKs.
8. Did you know that inheritance tax is charged at a frightful 40% on assets over £500,000 (where this includes passing on your main residence)? No one wants to leave their loved ones with a horrific tax bill and so it’s important to carry out careful inheritance tax planning. One of the most common problems we see people face is when they want to gift property as part of that planning, only to realise that, by doing this, it means they themselves may face a large capital gains tax (CGT) bill. That’s because even where you are not selling an asset for a profit, if there is an increase in value, HMRC will treat it as you having received the added value and also as having gifted it. There are different ways to overcome this problem so make sure you speak to chartered accountants for expert advice.
9. That has nicely led us to tip number 9, which is to always use reputable and reliable chartered accountants. You may not know this, but anyone can call themselves an accountant. Accountants with chartered status however means that their qualification provides you with a guarantee on their service levels, and that their conduct is governed by the ICAEW. Any issues or complaints will be taken with the upmost seriousness. Avoid cowboy ‘accountants’, even where their fees may be tempting, or it could cost you more in HMRC penalties. We’re rarely the hero of the story, but that’s ok with us, because we have undoubtedly helped many of our clients out of stressful situations when it comes to their tax liability. Whether you need to rely on us to remind you of the deadlines, help you make sense of HMRC’s letters, or get advice on tax rules and ways to cut your tax bill down, getting expert help will give you peace of mind.
10. Finally, our last tip for avoiding the ultimate tax nightmare – an HMRC investigation – is to protect yourself. Consider taking out tax investigation fee protection. Each year, HMRC have increasing targets to claw back missing tax payments. They’re investing in a range of technology and software to identify and target individuals to investigate. Their approach is becoming more and more aggressive and with millions of pounds being issued due to Coronavirus support schemes, a rise in investigations has already begun. To protect yourself from the costs of defence during an investigation, tax investigation fee protection can provide cover.
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