The Penalty of missing a Tax Deadline
When people start up their own business or working for themselves, they are often fired with passion and enthusiasm for their brand or service. However, undertaking the paperwork and the accounting behind the great idea is often something which gets left to the last minute with the inevitable dash to complete annual returns before the due date, and with many incurring late charges.
Statistics released earlier this year by HM Revenue and Customs saw over 730,000 small business owners submitting their tax returns late for the 2011/2012 tax year, generating a staggering £73 million in late payment penalties.
Could this have all been avoided with the help of an expert accountant?
SJD Accountancy work with over 13,000 small businesses so know that having your own accountant can help make your money go further as well as giving you invaluable financial advice.
The cost of being late
But how many really know the penalty costs of filing your accounts late? Let’s look at the figures:
For self assessment tax returns, being just one day late will see you incur a penalty of £100. After three months of being late, each subsequent day late will be another £10 per day up to a 90 day maximum or £900 total. And if you continue to fail to file your self assessment, the fee accumulates, with six months late adding an extra £300 or 5% of the tax due, whichever is the greater, so you could be paying up to £1,200 after just 6 months! There is then a further £300 or 5% of your tax due if you are 12 months late or potentially more, depending on the individual’s situation.
For those who are VAT registered in their business, failing to submit a VAT return every quarter is know as a ‘default’ and dependent on your turnover, you can be fined up to 15% of that turnover.
Up to a whooping £ 1,500 in penalties for limited companies, those self employed or small businesses that have opted to run as a limited company will have to file annual accounts to HMRC and pay corporation tax to the government on the profit generated by their company.
Your annual accounts include everything from your first financial year. They are due 9 months from your company’s anniversary date. If you fail to file your accounts on time you will receive a penalty of; £150, if late by one month or less, £375 if late between 1 and 3 months, £750 if late between 3 to 6 months with penalties up £1,500 if 6 months or later. If you have been late in the previous year too, these fines will be doubled.
Corporation tax is the tax your company pays on all profits made. Deadlines for paying your corporation tax are due 9 months and 1 day after your company’s anniversary date. If paid late, you will be charged interest on the late payment, until the account is clear, this is usually around 4% of your corporation tax if late based on 2013 penalty rates.
In addition to this, you will then have to submit your Company Tax return which needs to be filed to HMRC usually 1 year after your company’s anniversary date – this tells HMRC what exactly you have paid corporation tax on.
If late filing your return, you will incur a fine of £100, even if you are just one day over, and then an additional £100 should you leave it for more than 3 months.
Your accounting period can vary from the day your company is formed to the date you start trading through you it. If you are late filing for three or more accounting periods in a row, the £100 penalties detailed above are increased to £500 each.
If your return is more than 18 months late, small business get charged 10% of any unpaid corporation tax and a further 10% if filed more than 24 months late.
On top of fines for simply filing or paying late, there are also hefty fines if errors are made on your returns, for all types of tax.
Eating into your bottom line
So by just not keeping on top of the paperwork, you could be eating into your profit by failing to submit important documentation to Companies House and HM Revenue and Customs.
Managing Director of SJD Accountancy, Claire Johnson, comments, “Many small business owners think that having an accountant is a financial indulgence, yet fail to realise the amount of paperwork involved in running a business. Submitting accounts and tax returns late can end up eating into your profit significantly.
Having an accountant on your side, helping advise you on the best and most profitable way forward and guiding you through the quagmire of all things financially is invaluable – saving you money and bringing you peace of mind, while allowing you to get on with running your business.”
The benefits of employing an accountant.
1. To save you valuable time – Many self employed are experts within their chosen area, however, keeping the financials in check and making sure the bookkeeping is up to date are added tasks that take time and energy away from their business focus.
Self employed consultants charge a daily/monthly rate for their time. If they are spending that valuable time working on their accounts, it’s time that they could be using to generate more income. In effect, every hour spent working on their accounts is actually ‘costing’ the hourly rate or worst still eating into quality ‘time off’ time.
2. To help you fill in forms correctly, and on time – Being self employed means accounting for all of your financial actions and having evidence of these for the HMRC. Consequently this means filling in forms correctly and submitting them on time. If a document is completed incorrectly then the best case scenario is that HM Revenue and Customs will send it back to be filled in again, which could lead to it being submitting late. If a deadline is missed for important documents like tax returns, then a fine could be given. At worst, the forms could be sent to a tax inspector, who will then go through every single element of the finances in minute detail. Using the services of an accountant means you can be assured that the right forms will be completed, at the right time and in the right way avoiding you being at the end of any nasty charges for missing your tax deadlines.
3. To minimise your tax bill – Completing the forms correctly is one thing, but doing so in the way that is going to save you the most money is quite another! A good accountancy firm will make sure you are aware of all of the legal ways to minimise your tax bill. They will also make sure that you take full advantage of the ever-changing tax laws, so that you always pay the right amount of tax, and this ‘tax planning’ service is one of the biggest benefits.
4. To help you to grow your business – Your accountant should not only help with the paperwork, but should be a great source of advice to help you develop your business. If you want it to be a success, it’s vital that you take the right financial decisions, as well as the right managerial ones, very early on.
They can also act as a business consultant, assisting you with various business problems, and offering good solutions based on their experience.
And in the worst case scenario if things go wrong, they will usually have close connections to other professionals such as bankers and lawyers, who can help you out.
5. To remove your tax worries – Your accountant will; prepare your company year-end accounts, prepare abbreviated company accounts where appropriate, sort out your personal tax return, corporation tax computations and Returns, VAT calculation submissions, liaison with HM Revenue and Customs, dealing with Companies House, sorting your payroll. . . pretty much everything you need!
Your accountant will keep abreast of the UK tax system, all regulations and legislative changes and make sure you don’t miss any crucial deadlines. Remember, being just one day over your tax deadline could cost you a £100 penalty! Your accountant prepares everything so you never have to worry about your tax affairs again.
How to find the best accountant for you and your business
So having an accountant makes sense, but what are the next steps to finding one that is right for you and your business?
- Ask for referrals for accountants from other self employed people – good accountants are like good builders, word of mouth is the best way to find them!
- Get your own dedicated accountant – calling up a call centre type environment will soon get boring especially when you have to explain who you are and what you do each time you call. Ask yourself, if you don’t get your own accountant who the heck is going to take time to get to know you and find out what your business goals are
- Make sure they are fit for your purpose. Your company might not need the expertise of someone who deals with mergers and acquisitions of multi-billion pound organisations but it might still be complex tax wise, and choosing a firm who also helps pubs, engineering companies and the local printers really doesn’t make much sense if you are in IT. Find an accountant who specialises in your market and in those who work for themselves like you.
- Choose someone you can meet face to face. There is an increasing drive in the market for companies to offer telephone or email only services, which sounds well and good, but what if something serious was to happen? What would happen if, in the unlikely event, HMRC decided to investigate you? The likelihood of feeling reassured through a Skye or instant messenger conversation probably isn’t going to make you feel reassured. Your finances are your affair and in some cases might need to be chatted through face-to-face in a private setting. Make sure you have the opportunity to meet your accountant if and when you need to.
Finally, Check their credentials; see if they have won any external awards for customer service or accounting excellence. Also see where the awards came from, are they specific to your market or working with small businesses?