Tips for small businesses on completing tax returns

Tips for small businesses on completing tax returns

Dec 21, 2023

FreeAgent’s chief accountant Emily Coltman FCA provides some handy tips for small business owners to help them file their self assessment tax returns

Although the self assessment deadline is not until 31 January, there continues to be an increase of taxpayers in the UK choosing tax returns over turkey by using the festive period as an opportunity to submit their tax returns online with HMRC. In fact, last year 22,060 taxpayers submitted tax returns over the festive period.

If the deadline of 31 January is missed, HMRC will automatically issue a £100 penalty, and will charge interest on any unpaid tax. The cost goes up again for failure to file within three months.

Small business owners and self-employed people have been hit hard as a result of rising prices, record inflation and the ongoing energy crisis. Our research has found that around 18% of small businesses either think they will perform worse over the next 12 months or will have to close their businesses altogether, so it’s more important than ever for SMEs to avoid unnecessary – and avoidable – costs.

FreeAgent has offered some simple tips that business owners can use to get their self assessment sorted. These include:

Assemble all your paperwork first

Like any task, the tax return is best completed in bite-size chunks. I recommend collecting together all of the paperwork that you’ll need as a first step, before you start filling the form in. Here are some examples of what you might need:

•            forms P60 and P11D from your employer;

•            bank interest certificates;

•            pension income certificates; and

•            details of any Gift Aid donations made to charity.

Make sure you’ve got the right year

When collecting paperwork, make sure it is for the right tax year – that is the year that finished on 5 April 2023. Don’t make the mistake of using a P60 with a previous year’s salary on it, because even if you were earning the same salary, the tax figure may well be different year-on-year.

If you’re self-employed, you will need to include on your tax return your business’s profits, because that is what you will pay tax on.

Be aware that if you do not draw up your accounts to 31 March, 5 April or any date in between, and you have been trading for a while, then the figures need to include your business’s income and day-to-day running costs for the accounting year that finished in the year ended 5 April 2023.

For instance, if you draw up your accounts to 31 December each year, then on this tax return, you need to include your income and costs for the calendar year 2022 – because the 31 December that falls in the tax year ended 5 April 2023 is 31 December 2022.

What’s the right amount of bank interest?

You need to include the total amount of interest your bank was due to pay you in the tax year ending 5 April 2023.

Suppose you have a joint bank account with your partner or spouse? – Include your share of the interest on the account.

If you are running a business, then any interest the bank paid on its bank account goes on your tax return, unless your business is a limited company, in which case the bank interest belongs on the company’s tax return, not yours.

If you have an ISA, leave any interest you have received on the ISA off your tax return altogether.

Marriage allowance: to give or to receive?

All taxpayers, except the highest earners, are entitled to receive some of their income tax-free each year, up to the personal allowance level (which is £12,570 at the moment).

If your income is below that level, you will be what is called a non-taxpayer. If you do not pay tax at any rate higher than the basic rate (20%), or, in Scotland, the intermediate rate (21%), and your partner or spouse is a non-taxpayer, then they may be able to transfer some of their personal allowance to you to save some tax. This transfer is called marriage allowance.

Be careful not to enter this the wrong way round on your tax return – if you are paying tax at the basic or intermediate rate, you can receive marriage allowance, and if you are a non-taxpayer, you can transfer it. It only works this way round.

Don’t wait till the last minute!

It’s tempting to put off filling in a tax return until the end of January – but don’t! Not only are you more likely to make mistakes if you are trying to fill the form in a rush, but you may also encounter log jams in HMRC’s online filing service as lots of other taxpayers all try to file at once.