Taxes are the one thing that all business owners need to deal with, but there are not many who want to spend too much time thinking about it.
However, it is essential to make sure your tax return is correct, and the right amount of tax is paid. Here are a few of our top tips to make taxes a little less taxing.
Not all businesses need to register for VAT and the threshold for which it is compulsory changes each year. However, some businesses below the threshold choose to register to make the most of benefits such as:
Reclaiming VAT paid for business purposes
Equipment and supplies bought for your business will have VAT applied, from computers and desks to tea and coffee. However, if you are VAT registered, you will be able to claim this back when you file your tax return.
Looking more professional
As VAT is only compulsory for businesses with a turnover above the threshold, being VAT registered may give the impression of your business being larger than it is. This can be a benefit if you work with larger businesses who are more inclined to use businesses similar to themselves.
The threshold for VAT registration changes every year and is £85,000 for the 2020/2021 tax year. Some businesses will leave registration until they meet this threshold as there are some extra requirements VAT registered businesses have to fulfil:
VAT registered businesses must add VAT to their prices. If your competitors are in a similar position, they will have to charge VAT too, so you should not be left at a disadvantage. And if your customers are VAT registered themselves, they will be able to claim that additional amount on their own tax returns. However, it is something to bear in mind if your competitors are not VAT registered – their costs will appear cheaper and will be cheaper for businesses who are not VAT registered themselves.
VAT registration requires slightly more accounting paperwork, including a quarterly VAT return.
The decision to register for VAT can be a tricky one – you need to be sure it will benefit your business and that you are registered with the most appropriate scheme. Owners of VAT registered businesses also need to be aware of the Making Tax Digital rules.
Top 3 tax mistakes
Tax can be complicated – that is why many businesses rely on accountants to help, and even they need to refer to HMRC at times. It is inevitable that mistakes will be made, resulting in people paying too much, too little, or not making the most of the exemptions they are entitled to.
This blog cannot cover every eventuality, but here are three common mistakes which are easy to avoid:
- Keep proper records
Paperwork may not be the most exciting prospect, but keeping good records stands your business and your accounts in good stead. Keep your receipts well-ordered (that shoebox storage system makes it too easy to make a mistake!) to make sure you claim for everything you can and that HMRC are satisfied that your records are accurate.
- Pay PAYE and VAT promptly
Missing or falling behind with payments can cause big problems for your business. In the short term, it can disrupt your cash flow, making day-to-day transactions harder. However, missing VAT and PAYE payments can lead to legal action from HMRC, ranging from being chased for tax arrears to a winding up petition – where HMRC can close your business and use your assets to pay off the debt.
- Say if you make a mistake
We are all human and mistakes happen to everyone. If you notice a mistake in your old paperwork, let HMRC know. If you keep it to yourself, the mistake becomes liable for a penalty – your business will be knowingly making a mistake or behaving negligently. By letting HMRC know as soon as possible, you may be given time to correct your mistakes and any penalties may be more lenient.
Every single business will have its own unique challenges and options when it comes to tax. Purple Lime have in-house experts who can help you through the whole process and work out what is best for you now and in the future. For a free consultation email email@example.com or call on 01249 691360.