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• improvements to your billing systems and record keeping
system, or a general review of your current systems to
improve profitability and cash flow
• national insurance efficiency and employee remuneration.
Avoiding late filing penalties
It is important to keep your tax affairs in order so that you avoid
incurring any late filing penalties. The cut-off dates are shown in
the calendar, but the current penalties are:
Return one day late
£100
Return 3 months late An additional £10 for each following
day up to 90 days
Return 6 months late Add £300 or 5% of the tax due
Return one year late Add £300 or 5% of the tax due*
*In more serious cases, this penalty may be increased to 100%
of the tax due.
The timetable for making tax payments is relatively
straightforward for the self-employed:
• 31 January in the tax year, first payment on account
• 31 July after the tax year, second payment on account
• 31 January after the tax year, balancing payment.
Again, a system of interest and penalties applies. For example,
if any balance of tax due for 2015/16 is not paid within 30
days after 31 January 2017, HMRC will add a 5% late payment
penalty as well as the interest that will be charged from
1 February 2017.
A further 5% penalty will be added to any 2015/16 tax unpaid
after 31 July 2017, with a final 5% penalty added to any
2015/16 tax still unpaid after 31 January 2018. Interest is also
charged on outstanding penalties, as well as on unpaid tax
and NICs.
If your business is incorporated, it will be liable to corporation
tax. Corporation tax is usually payable nine months and one day
after the end of the company’s accounting period.
If there are cash flow issues, HMRC might be persuaded to
accept a spreading of your next business tax payment – you
will have to pay interest at the HMRC rate, but keep to the
agreed schedule and late payment penalties will be waived.
Arrangements need to be put in place before the due date for
paying the tax, so talk to us in good time if you wish to apply.
Payments on account
Payments on account are normally equal to 50% of the
previous year’s net liability. A claim can be made to reduce your
payments on account, if appropriate, although interest will be
charged if your actual liability is more than the reduced amount
paid on account.
There is no equivalent mechanism to make increased payments
on account when the year’s tax will be higher, so you should
ensure that you build a reserve of money to pay the balance of
tax due.
Don’t wait until it’s too late if you have difficulties!
Please tell us in good time about any issues facing your
business, as we may be able to offer solutions.
Payments on account are not due where the relevant amount
is less than £1,000 or if more than 80% of the total tax liability
is met by income tax deducted at source. In these cases, the
balance of tax due for the year, including capital gains tax, is
payable on the 31 January following the end of the tax year.
Case Study
Raul is self-employed. His accounts are made up to 31 August
each year. When we prepare the 2016 Return we will be
including his profit for the year ended 31 August 2015, and
that is the profit which will be taxed for 2015/16.
Raul’s payments on account for 2016/17 will automatically be
based on the 2015/16 liability.
Providing we know that Raul’s profits for the year to
31 August 2016 are significantly less than the previous
year, we can examine the figures, perhaps even prepare the
annual accounts and, taking into account any other sources
of taxable income, make a claim to reduce Raul’s 2016/17
payments on account, easing his cash flow by reducing the
tax payments due in January and July 2017.
Your next steps: contact us to discuss…
•
Starting up a new business
•
Raising finance for your venture
•
Timing capital and revenue expenditure to maximum
tax advantage
•
Minimising employer and employee NIC costs
•
Improving profitability and developing a plan for
tax-efficient profit extraction