Penalties are issued by HM Revenue & Customs (HMRC) in a number of situations. Missing a deadline for filing self-assessment tax returns, or not submitting Real Time Information documents in a timely manner, will result in a hefty penalty. Failing to pay tax on time is another situation where you will be penalised by HMRC. The cost of penalties soon adds up, sometimes to 100 per cent of the total tax outstanding, plus possible interest payments.
Penalties for errors discovered by HMRC in tax returns and business records may also be charged, but it is possible to avoid or reduce the likelihood of being charged penalties:
Seek help from the first day of business
Rather than wait until your tax affairs become more complicated, outsource some of the business finances to a professional so that you are always organised and compliant. Finance and accounting services may seem like an extra investment at a time when you may be struggling to survive, but the initial outlay will reap rewards in the long term. An accountant can make sure that your business records are accurate and up to date, while payroll and your year-end accounts will be dealt with in a timely manner. With all your business records and payments up-to-date, you won’t be charged penalties.
Estimate your taxes from day one
If you leave your accounts till late in the year, you may get a shock when you discover exactly how much income you have received and how much you owe in tax. Be organised and calculate income on a regular basis, so that you can put aside some money to cover the tax owed. Keeping track of income and expenditure is crucial if you want to have a healthy cash flow. If you miss your tax payment due to insufficient funds you will be charged a penalty, which will add to the shortfall of cash.
Pay the payments on account
Payments on account are made at the end of January and the end of July, and will be based on the previous year’s tax bill. The amount is split in half, and the first half is paid 31st January and the second is paid 31st July. Even if you think you may have earned less in the current year, still make those payments on account to make sure you have enough to pay the tax bill and avoid being penalised.
If you want to know how you can avoid penalties or extra charges, give us a call today.