For many sole traders the end of their accounting year is the end of March. It is at this time many people put away their accounting books for that year, only to forget about them until the tax deadline, the following January. At the beginning of the New Year, they are dug out from the back of the cupboard, dusted down and presented to the accountant, only to have him tell you that you have not made as much as you thought, but you still owe the tax man his share.
The next problem you have, is how? Christmas has come and gone, there is a hefty credit card bill outstanding and it is the quiet time of the year for your business and there is not much available cash.
Failing to budget for tax is one of the principle reasons why businesses fail. No one likes paying tax and failing to be prepared for it can be disastrous. Putting your head in the sand and hoping it will go away is not a good idea as I can guarantee that it wont. If, however, you have been careful and allocated funds regularly throughout the year, you should be able to cover the tax and Class 4 National Insurance when they are due.
The HMRC will contact you in April or May and inform you that you will need to complete a tax return for the year 2013/14. They will explain when you need to submit the return and pay any money owing.
The date that most people are aware of with regard to tax, is the 31st January. But you do not have to wait until then, the return can be calculated and even submitted several months before this.
Having calculated the amount of tax due to be paid, action can be taken so that there is enough cash saved and available at the January deadline to make the actual payment.
Opening a separate bank account is a good idea and paying in a proportion of amount owing each month. A savings account which pays interest however small is good option.
If you do have the cash available before the deadline, transfer the amount to a savings account and resist paying the HMRC early. It is good if you can get any interest due on it rather than the taxman.
If this scenario is very familiar to you and you feel you should do something about it, here at The little Bookkeeping Company we would be happy to help.
Contact us on Jocelyn@littlebookkeepingcompany.co.uk
or
07999 556288
You run your business because you have a passion for what you do and not because you want to do the bookkeeping, but bookkeeping is a necessary part of your business.
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