THE end of a financial year and preparation of annual tax returns are time-consuming for any business owner, and everyone has plans to be more organised the next time round.
Every accountant’s worst nightmare is the ‘biscuit tin scenario’, when a client hands over a year’s worth of receipts and invoices in no particular order with an HM Revenue & Customs deadline looming.
HM Revenue and Customs recently revealed it has issued around 850,000 late filing penalties to taxpayers who did not meet the January 31 deadline for online personal tax returns for 2011/12 – equating to a whopping £85 million in fines.
The new income tax year starts on 6 April, and leading North-east firm SBP Chartered Accountants is urging business owners to take the time now to get prepared to avoid facing further penalty charges later.
There are a number of business benefits to be gained from keeping accurate and up-to-date records. It saves time, and therefore money, when you need to produce financial reports. Most importantly, it is an assurance that you are paying the correct amount of tax.
SBP head of tax, Alan Masson, explained it is much more efficient to organise records throughout the year.
He said: “If you are guilty of sorting out your financial information at the last minute, it is worth considering introducing a simple weekly or monthly system. If you are tackling issues and filing your documents regularly, the annual accounts and tax return won’t be such a daunting task.
“If you don’t have exact figures for the tax return, you can avoid being fined by providing HMRC with a provisional figure, which can be used until the actual amount can be confirmed. If people choose to use a provisional figure, they have to make it clear that it is not the actual figures.”
SBP, which has branches in Aberdeen, Peterhead, Fraserburgh and Banff, provides assistance in accountancy, taxation and audit services, along with a range of expert financial services.
The firm, which has been in business for more than 40 years, is recommending people start thinking ahead to the next tax return, even though the deadlines are months away.
This year’s paper tax returns, for the year ended 6th April 2013, must be with HMRC by 31st October.
Mr Masson continued: “If people have any income to declare, they will have from 6th April until 6th October to ask the taxman for a form to complete. If taxpayers fail to ask HMRC for a form when they are required to do so they might be subject to a penalty based on potential lost tax revenue.”
Here are some tips on what records should be kept:
- If you are a UK taxpayer, you should keep a record of the tax you pay each year and other records relating to your income and outgoings. You’ll need these to help you complete your tax return or to answer any questions from HMRC about a return you’ve already completed.
- If you have to send HMRC a tax return, you should keep all the records and documents you need to enter the correct figures. If HMRC needs to check your return, they may ask to see the records you used to complete it. If you don’t keep adequate records or if you don’t keep your records for long enough, you may have to pay a penalty.
- Make sure you keep interest, dividends or other income from UK savings, investments or trusts. You should keep all interest certificates, bank statements and dividend vouchers. You should also keep details of exceptional amounts you’ve received – for example, an inheritance or other windfall
- If you get income from letting out a property, you’ll need to keep details of the rents you’ve received and the expenses you’ve paid.
- Foreign income or gains and Capital Gains Tax records should also be kept. It’s a good idea to keep any records associated with an asset you’ve owned in case you make a gain or loss when you sell, give away, transfer or exchange it.
Mr Masson added: “It is important for people to keep anything and everything relating to their business as it is much better to be safe than sorry. Theoretically HM Revenue and Customs can check everything, so people should take care and keep records of all documentation relating to their business.
“The chances of being selected for a random check by the taxman might be slim but business owners shouldn’t risk getting a hefty fine.”