For those that are self-employed, it can be quite daunting to sort out what tax needs to be paid. Let’s face it, nobody wants to get on the wrong side of the tax man. Not only can it be a rather unpleasant experience, it tends to cost quite a bit too.
Chartered Management Accountant Oumesh Sauba is the founder and CEO of MYT Limited, an award-winning, AI-driven accounting app and software designed to support small and micro business owners with their bookkeeping. Here are five ways to avoid common tax mistakes that are often made by Oumesh.
Get organisedÂ
The first tip would be to get organised. Like with anything, planning ahead and being organised results in better performance. Keeping hold of all receipts, as well as tax records from previous years should be done. Creating a clear filing system is a good idea and there are apps and digital solutions available which can really help to take the pressure off. Having a system in place that logs all information and issues alerts ahead of payment due dates can be beneficial, as it will take away the stress of having to remember these yourself.Â
Source a good accountant
It’s advisable to get an experienced accountant on board. A lot of people think that accounting services are only required for big businesses, however accountants can help save money – even for freelancers and small business owners. Building a good relationship with them is key, as is finding somebody efficient and reliable. Hiring an accountant is a smart choice as they can advise on what can and can’t be claimed for, what can be offset against business expenses and they will help to avoid errors such as miss-reporting income. There are many accountant services available to suit different business sectors, so it’s important to choose one that marries up.Â
Registering & submitting a self-assessment on time
Registering with HMRC is required when earning more than £1,000 from one or more trades. It’s often thought that if earnings are below the personal allowance threshold of £12,570, registering and submitting a self-assessment isn’t needed, however this is not the case as declaring earnings to HMRC is still a requirement. The first thing is to register as self-employed in order to complete a self-assessment tax return. The second step is to take note of the deadlines for submitting a tax return, to make sure you avoid unnecessary fines and penalties.
Manage cash flow
For self-employed people it’s vitally important to efficiently manage cash flow. With any business there will always be quieter months so it’s a good idea to keep this in mind and prepare. If cash flow is managed poorly, it can sometimes mean that saved tax money is spent to cover day-to-day expenditure. Having a reserve fund or overdraft facility in place to manage any shortfall is essential. Keeping on top of invoicing is a great way to keep the cash flow moving.
Making sure taxes are paid on time
This may seem like an obvious tip, but it’s surprising how many people forget when taxes and National Insurance (NI) contributions need to be paid. There are two ways for self-employed people to pay NI – either through the self-assessment tax return, or a voluntary contribution can be paid through the HMRC website. Investing in accounting software that includes deadline alerts and reminders, like MYT, will help avoid fines and penalties incurred from late payments.Â
