It can be a bit complicated to stay on top of your tax obligations when you are running a busy business or multiple businesses. It is vital to pay all your taxes on time. Falling behind on the due date will impose penalties. Most of the time, accountants do not start arranging documents until the month of filing income tax returns.
A golden rule of thumb says that you should keep your accounts updated so you do not have to waste your time rummaging through documents and files you need to file your tax return. Various methods are out there to help you stay on top of your tax obligations. Some of them have been discussed below.
Here is how you can avoid falling behind on your taxes:
The first thing you need to learn is to be organised. You will have to keep all documents, including invoices and receipts, so that you can prove your expenses. You should keep a record of at least five years, in case you are summoned to answer a question subject to your previous trading. It will help you prove all your expenses.
Of course, it will be hard to take care of this much paperwork. You must have an advanced software system to record all files and documents. Undoubtedly, the software will be too way expensive. There is no other way than buying software.
If you have enough money, you should not need to bother about it, but you will hesitate to buy software if you are tight on a budget. In the beginning years of a business, you might not have sufficient working capital. In that case, you can take out an unsecured business loan. At the time of taking out these loans, you should ensure that you will not fall behind on payments. These loans are usually expensive because a lender is deemed to bear greater risk. Interest rates will be higher when your credit history is not so good.
You should keep a record of everything. It is highly advisable that your bank accounts clearly indicate money coming in and going out of your bank accounts. Transparency is a must to avoid any sort of questioning. Make sure that you know the sources of income. Obscurity will bring you under scrutiny. You might think that you will remember everything, but that is imbecile.
Further, the authorities need proof. No tax deductions and benefits can be claimed without having a genuine record of your accounts. Make sure everything is in one place and order so you do not have to rummage through papers at the time of filing your return.
The best way to keep all records is to use advanced software. Manual invoices and receipts can be difficult to manage. Make sure that you use digital platforms. Some software will allow you to take a snap of a printed invoice or receipt and store it so you can access it anytime you want. You will need software with a high storage capacity.
You can use cloud software for unlimited access as well. However, they will cost you a lot of money. You can consider using same-day business loans if you need money to fund them. These loans are small business loans. You can get approval the same day; however, interest rates will be high.
You should figure out ways to whittle down your tax bills. Your accountant can help you maximise deductions and benefits.
Navigate your corporation tax. You will be obligated to pay flat 25% if your profits are over £250,000 and 19% if they are under £50,000. You will pay a tapered rate if your profits lie somewhere between. Make sure you carefully plan your expenses so your income does not fall into a higher tax bracket.
Similarly, you will have to register for VAT if your turnover is above £85,000. However, consider a flat-rate VAT scheme.
The self-employed often struggle to reduce their tax bills, but there are many ways to do that. You should try to claim pension contributions. You can claim tax relief on contributions up to £40,000 per year. Charity donations can also help you lower your tax burden. However, you will have to keep all the records to claim benefits and deductions.
Maximise deductions and company benefits to reduce your taxable amount. For instance, make a record of all business-related expenses such as office supplies, travel and equipment. You can get all these expenses deducted from your business profitability.
Make sure that you have a complete record of invoices and receipts. For instance, if you run your office from your house, you can claim a proportion of your household expenses. You can also deduct costs related to marketing and insurance. Talk to your accountant to know what qualifies as a tax-deductible expense.
You should enrol in an employer share scheme if you run a company. By offering benefits to your employees, you can claim them from your profitable income.
If you have a high income, you are more likely to pay higher taxes. Therefore, it becomes crucial to plan taxes. Here are some ways to maximise pension and other contributions to reduce the impact of taxes on your income.
High-income earners struggle to retain a large proportion of their income because of tapered pension annual allowance. This annual allowance starts decreasing when your income exceeds £260,000. You can retain the maximum allowance of up to £10,000.
You can maximise your pension contribution by reducing your taxable income. Do not ignore the contribution from your employer as it counts as your allowance. Take advantage of salary sacrifice schemes because you will be able to protect a lot of money you contributed to your pension from taxes.
Tax-efficient investment accounts are aimed at reducing tax liabilities on the part of higher taxpayers. A couple of investment strategies help you reduce your tax bills. One of them is investing in individual savings accounts that offer non-taxable returns. However, there is a limit to it. Other schemes include venture capital trusts and enterprise investment schemes.
It is not easy to know about the taxes inside out. Even though you have been from an accounting background, it can be difficult to keep up with tax updates. Hire someone who you can count on to reduce your tax bills.
Ensure that your accountant helps you invest and save money in a way that enables you to claim benefits and deductions. Make sure your accountant has access to advanced software to keep all records up-to-date and accessible. This is how you will never miss a deadline for paying your taxes.
You should hire an accountant to stay on top of your tax obligations. Make sure that the accountant uses advanced software to keep a record of all invoices and receipts. Figure out ways how you can maximise the benefits from pension, savings and other investments.