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• All aspects of starting up a business
• Raising finance
• 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
and 30.6%. So in the example the income tax on the dividend
increases by £600 (assuming the £5,000 Dividend Tax Allowance
has already been utilised).
Year end planning
Tax and financial planning should not be left until the end of
the tax or financial year, but undertaken before the end of your
business year. Some of the issues to consider include:
• the impact that accelerating expenditure into the current
financial year, or deferring it into the next, might have on
your tax position and financial results
• making additional pension contributions or reviewing your
pension arrangements
• how you might take profits from your business at the
smallest tax cost, and how the timing of payment of
dividends and bonuses can reduce or defer tax
• 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 2014/15 is not paid within 30 days
after 31 January 2016, HMRC will add a 5% late payment penalty
as well as the interest that will be charged from 1 February 2016.
A further 5% penalty will be added to any 2014/15 tax unpaid
after 31 July 2016, with a final 5% penalty added to any 2014/15
tax still unpaid after 31 January 2017. 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 business’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.
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 31 January following the end of the tax year.
Case Study
Owen is self-employed. His accounts are made up to
31 August each year. When we prepare the 2015 Return we
will be including his profit for the year ended 31 August 2014,
and that is the profit which will be taxed for 2014/15.
Owen’s payments on account for 2015/16 will automatically
be based on the 2014/15 liability.
Providing we know that Owen’s profits for the year to
31 August 2015 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 Owen’s 2015/16
payments on account, easing his cash flow by reducing the tax
payments due in January and July 2016.