Avoiding HMRC Horrors (Video)
Hiya, Michelle from QAccounting here!
Don’t worry, the HMRC Compliance Checks are not as scary as you might think. Basically, our business snippet today is all about keeping good records. We see a lot of people here, through the QAccounting doors who have shoeboxes full of receipts or a plastic bag full of receipts.
What we usually recommend, when you begin trading as a Sole Trader or a Limited Company, is that you keep a good record of what all of these receipts, expenses and invoices relate to, just to keep your records correct. The bad news for the tax man, HMRC, is that poor record keeping actually leads to 40% of small businesses underpaying in tax and they obviously want to tighten the reigns on this. To do so, they are streamlining all of the processes on their end to check into small businesses, and ensure the correct amount of tax is being paid.
HMRC now has the power to do un-announced compliance checks into your books and so for that reason it’s a good idea to keep very good records and what we are recommending, here at QAccounting, is to use an online book-keeping system to upload receipts etc to right from the very start.
You’d be amazed the benefit you’ll get out of such a system, purely because you know what is happening in your business throughout the year in addition to any compliance checks that do come in from HMRC. You’ve also got all of your records ready to show, proving that you are putting a lot of effort into paying the correct amount of tax at the end of the year.
Tax returns, such as your personal tax return, company return or VAT return are used to tell HMRC how profitable your business has been. These include things such as your income; should these be incorrect, it will definitely make an impact on your tax return. So for that reason, making sure that all business expenses and things are included in the calculation is a really good idea.
The main risk for your small business, or if you are a freelancer (we’re classing you as a small business for this example) is if you’ve not been keeping your books correctly, or if your accountant hasn’t been keeping your books correctly for you, then this may seem to HMRC that you’ve been avoiding tax or that you’ve been deliberately making mistakes; even if all the good intentions are there, they will come down hard on people who have made mistakes. Due to this we do recommend that you find someone to look over your books or even to keep good books yourself, ensuring everything is included. This way, if HMRC do make an un-announced check on your accounts, you are A-OK and you have everything there that you need.
There is an upside to these HMRC checks! Not only will they ensure that you pay the correct amount of tax, but they will also highlight if you’ve over paid tax, and result in showing you where those overpayments have been made and ensure that a suitable rebate is made. So as long as you’ve been honest and keeping your books correctly, there’s nothing to worry about!
Not only are the HMRC checks something to encourage you to keep good books, but keeping such good books can also massively impact your business in a positive way. 40% of businesses actually fail due to incorrect book-keeping and for that reason its such a good, and simple, idea to keep a log of every transaction coming in and out from the business, so that you’re kept right throughout.
HMRC are proposing to charge £3,000 to any business which has been devious or mis-reported things in their books and for that reason its super important to keep really good books and be as honest as possible with all transactions coming in and out of the business.
We just wanted to touch on this briefly to let you know that HMRC are really tightening up on their compliance checks but if you would like to know more about this topic, SMARTA have brought out this brilliant e-book which gives you a really good guide into the penalties that can happen if anything does come up in an investigation, as well as great notes on what to keep noted in your books and how to improve yourself as a business, in general, through good book-keeping. So I do very much recommend this as a good read!
Corporation Tax Rate Changes
Rishi Sunak has proposed a number of changes to the way that Corporation Tax will be calculated and applied. Learn more.
Autumn Statement – Headline Changes
Autumn Statement – Headline Changes
Extracted from the ACCA Guide to the Autumn Statement 2022
Why Freelancers Should Hire an Accountant
In the world of work, freelancing is an increasingly popular option. The promise of flexibility, unlimited earning potential and complete control over the way you work is a hugely attractive prospect for many.
Although freedom is one of the big draws of the freelance lifestyle, there’s still plenty of financial responsibilities that come with it that can really eat into your time and profits.
But do freelancers really need the services of an accountant? Let’s find out.