I meet too many bright, driven entrepreneurs who have one thing in common; they leave their tax returns to the very last minute. It's not even because it's "out of sight, out of mind." Most of them start the new tax year, promising themselves that this year it will be different. This year they will get it done early. Just after the summer and definitely before Christmas. Only they don't. They carry around the dread like a sack of spuds. As time goes on, the feeling gets heavier, the dread gets bigger and so does the fear of having an unknown tax bill.
So here are my recommendations on how to tame tax and get it eating out of the palm of your hand.
So, first of all, let's get the cold truth out of the way. Your tax is your responsibility. Not your partners, not even your accountants. Yours. Once you own it, you know that it's up to you to get it sorted. Outsourcing is part of a solution, but you still need to provide the information and find the money.
Secondly, as the brilliant Ray Dodds said to me when we were prepping for an instagram live on this very subject; it's not your fault that you don't understand taxes and are fearful. We are notoriously bad at teaching this both at school age and beyond, but see point one. In spite of that it is your responsibility to be accountable for it, so with that in mind, what's the next step to taking ownership?
Be interested and don't stick your head in the sand. Find out how your tax works. Ask someone who understands it how it all works. Don't be afraid to ask your accountant. See my fundamental facts about tax at the end of this blog.
See it for what it is. If you are paying taxes generally it means you’re profitable, so celebrate it. If you make a loss or a small profit, you don’t pay tax so treat this as room for improvement. What small changes can you make to turn the loss into a profit, or make yourself more profitable?
Don’t leave them until the last minute as your depriving yourself of smugness once they are complete and submitted. If you don't, you only end up carrying round a feeling of dread.
Build your tax team! Use an accountant - don’t just assume you can’t afford to. Often you can get your taxes done by someone else whilst you’re earning more money elsewhere. Also accountants know of lots of way to save and reduce tax that you just won’t know so it could be a false economy. They also know how to complete the paperwork correctly. Just make sure your accountant is someone you can talk to easily.
But even before your accounts get to your accountant... Surprises are no fun where tax is concerned! Keep on top of your finances in check as you go along so that you can have a rough idea of the profit before you even get to the end of the year, making sure you deduct all expenses as you go along. They are really hard to remember months after the event. Again, if you can see that you’re not profitable you’ve got heads up to change something.
Use a business bank account for business expenses and personal account for personal expenses.
And if you are too profitable, you can take action to reduce tax by making investments in assets, pensions or bringing a planned purchase forward. Ask your accountant if you are doing everything that you can to minimise tax and keep it where it belongs... in your pocket?
Once your are comfortable with the basics, take your knowledge to the higher level. If you’re a soletrader, would you be better off in a limited company? Different tax rates for different ways of working. For a no obligation chat, feel free to contact Harland Accountants, an affiliate company of Deborahs for advice you can trust.
But If you insist on doing it yourself, the HMRC helpline is available to support you. Their advisors are nearly always helpful and friendly. You will always be waiting on the phone for ages, so only call when you have the time and make a cup of tea and go to the loo first.
Some fundamental things to understand about the personal tax system. Give yourself a pat on the back for every point that you know!
Get your handy tax return checklist here!