By Diana Flier, compliance analyst at Intuit UK
As tax reforms sweep the nation, HM Revenue and Customs (HMRC) is keen to get its house in order and is clamping down on small businesses evading or paying their taxes late. Since the deadline for completing self-assessment forms passed at the end of last month, it has already been reported that the taxman will collect up to £90m in penalty fines from taxpayers who failed to meet the January 31st cut-off date.
The 31st January was not only the deadline for the filing of self assessments, but also the closing date for the payment of any tax due. HMRC will be charging interest on any payments received after this date and have the power to add an additional 5% surcharge on payments received after 28th February. With directors filing their personal returns and sole traders being among those that missed the self-assessment deadline coupled with interest building on late payments of tax due for some firms, it is clear that many small business owners are still struggling to manage their finances.
Not only are late payers being pursued, but as a result of HMRC’s tougher stance this year, some small businesses may find themselves being scrutinised about their dealings. In an effort to crack down on firms they believe are escaping their full tax responsibility, HMRC has improved its risk profiling and ramped up its inspection powers. In addition, HMRC published a Business Records Check consultation in December 2010, announcing that it will be targeting small businesses who keep poor records, with the worst offenders facing fines of up to £3,000. HMRC uses a business’ records to check that revenue and expenses reported on tax returns are accurate and that the correct amount of tax has been paid, so it’s of the utmost importance that businesses get this right.
Tax investigations can come at a great cost for small businesses so given the focus HMRC is placing on maintaining accurate records, keeping on top of the books is the surest way to overcome this hurdle and avoid late payment charges or being probed.
Since we are only just over a month into 2011 and with more tax deadlines to meet, it is certainly not too late for small businesses to make sure their accounts are in line. Just keeping track of how much gets spent and on what can make a real difference. Especially in light of the numerous tax changes, there is no doubt that implementing a rigorous cash flow regime is best practice for businesses of all types and sizes.
A solid cash flow regime should involve looking at how much you’re spending on stock and services and determining if it’s all necessary and if it can be reduced at all. In addition, agreeing payment terms with your suppliers and customers in advance is just as important. This calls for a streamlined process to monitor and track how finances are doing, as well as tools to help business owners prepare their cash flow forecast. This doesn’t always require an experienced accountant and can be easily achieved through some simple financial management software.
With the right processes in place, a small business can operate more efficiently and increase productivity, which is essential when trying to navigate around all the various tax reforms and ensuring sufficient funds are being put aside to meet those tax payments in a timely and accurate manner.
Intuit UK is a leading provider of business and financial management solutions for small organisations and their advisors including accountants and bookkeepers. The flagship product QuickBooks is designed to help small businesses succeed through taking the worry out of managing business finances. www.intuit.co.uk.