Tax for Small Businesses

Paying the appropriate taxes for your business

Many people who run small businesses incur penalties for failing to submit their Self Assessment Tax Return on time.

The Self Assessment Tax Return is a comprehensive form with a number of accompanying schedules, but you need only complete those schedules relevant to your circumstances.

You (or your adviser) must submit your Self Assessment Tax Return including the calculation of your tax liability by 31 January of the year following, e.g. the Return covering income for the year ended 5 April 2010 must be submitted by 31 January 2011.

If you prefer, the Inland Revenue will work out your tax liability for you - but you only have until 30 September of the same year to supply all the necessary information and your completed Tax Return.

Bear in mind:

• There are random checks on completed Tax Returns.
• There are automatic fixed penalties for late Tax Returns.
• There are variable penalties for incorrect Tax Returns.
• There are interest charges (and surcharges) for tax paid late.

If you're an employee

The PAYE system itself was more or less unaffected by the introduction of Self Assessment, but you are subject to SA rules if you need to complete a Tax Return.

Remember, it's up to you to tell the Inland Revenue about anything that may have a bearing on your tax affairs - you cannot use the fact that you were not sent a Tax Return as an excuse. If necessary, you must ask for one.

If your tax affairs are not up to date, you should consider a complete review. Many people on PAYE never complete a Tax Return and never check their codings. As a result, some are paying too much tax. Others are paying too little and are building up a business tax problem for the future.

If you have retired

The deduction of tax at source from most pensions and investments is unaffected by Self Assessment.

You should, however, check to make sure that the right amount of tax is being deducted from your pension(s) etc. as the Inland Revenue will not necessarily do this for you.

There are still millions of pounds of unclaimed tax refunds being held by the Inland Revenue, a large proportion of which relates to retired people.

If you're an employer

You need to check the requirements to provide information to the Inland Revenue, your employees and your former employees.

You must also ensure that you are keeping adequate and appropriate records.

If you're self employed

Payments on account of tax liability are due on 31 January and 31 July, with a balancing payment (or refund) to be made on the following 31 January. It is worth remembering that any balancing payment must be made at the same time as the first interim payment for the following year, and that interim payments can be reduced where circumstances have changed.

Self Assessment has also led to more emphasis being placed on the ability to justify the figures included in the business accounts section of the SA Tax Return. You may face a fine of up to £3,000 if your accounting records are considered to be 'inadequate'.

If you're a subcontractor

If you're a subcontractor in the construction industry, the recent changes may mean that you are no longer entitled to receive payments without deduction of tax, due to the 'turnover tests'.

Applications for exemption certificates (CIS6) will, in addition, need to be supported by evidence that your tax affairs are in good order and completely up to date.

Avoid trouble with Self Assessment. This means:

• No outstanding Tax Returns
• No outstanding business accounts
• Maintaining adequate records
• Paying all taxes on time