Is your freelance business ready for the tax year-end?
The end of the tax year is rapidly approaching, which means it’s time to get your affairs in order and prepare your business for the next 12 months, writes Emily Coltman ACA, chief accountant at Free Agent, a provider of accountancy software to freelance contractors.
So if you’re self-employed, or run a business that prepares its accounts to April 5th each year, follow my top tips to help make preparing for the end of the tax year easier:
Speed up your spending – but be cautious
If you need to spend extra on the day-to-day running costs of your business in the near future, such as a new run of business cards or letterheads, you should do so before April 5th 2012 in order to claim the tax relief a year earlier. Even though these items are intended to be used over a prolonged period of time, you are allowed to put the cost of them in the current tax year - provided you purchase and start using them before the April deadline.
However, you’ll need to be careful. If any costs relate to a specific time after April 6th 2012, then you’ll have to carry them forward and claim tax relief on them at a later date.
For example, if you’re attending a training course in October 2012, and you pay for that bill in February 2012 – you will have to put the cost into the year ended April 5th 2013, because that’s the tax year in which the event will be taking place. It doesn’t matter that you actually paid for your ticket in the previous tax year.
Remember to keep this in mind when you pay for business costs - so you don’t spend too much or run out of cash!
Don’t wait to buy your assets
If you’re planning to buy any large pieces of equipment for your business - such as an iPad or a computer - remember that if you buy these assets before April 5th, you’ll be able to claim the tax relief on them a whole year earlier.
However, be aware that there are some big changes on the way that will make a considerable difference to the tax relief you can claim. Until now, businesses could claim tax relief on 100% of the cost of most new assets, using an allowance called the Annual Investment Allowance, up to a value of £100,000 in the tax year - and this will still be the case for purchases until April 5th 2012.
But after April 6th, 2012, this will drop to £25,000 for each tax year - so it may be prudent to buy your assets now rather than waiting until next year.
Register with HMRC and file your VAT return online
If your business is registered for VAT - or if it is due to be registered soon - then you need to register now to file your return online. From April1st 2012, all VAT-registered businesses are required to file their VAT returns online, rather than submitting this form by post - and they will also have to pay any VAT due to HM Revenue online.
However, it’s important to remember that registering to file your VAT returns online is a separate process from registering for VAT. Therefore, if your business is registered for VAT but you’re not sure if you’ve registered yet to file online, you need to check this out immediately! You should also be aware that HM Revenue has to send you an activation PIN in the post when you register to file your VAT returns online - so it’s vital that you don’t wait until the last minute to do this.
Don’t try to defer your business income
I know it’s tempting to try and move your business’s income into the next tax year, in order to pay the tax on this income a year later. But HM Revenue is wise to this trick - and they won’t be fooled!
Income must be included in your accounts depending on when you did the work, not when you raised your invoices or when your customers paid you. So asking your customers to defer payment won’t work, nor will dating all your invoices as April 6th 2012 instead of April 1st 2012.
Do your books and speak to your accountant
It’s very beneficial to make sure your business’s financial records are up-to-date and to also check-in with your accountant before the end of the tax year. They may have other suggestions about how your business could be saving tax - but if you wait until after April 5th, you’ll have to wait until the next tax year to implement these.
For example, if you’re a higher-rate taxpayer you could claim tax relief by putting money in a pension, or by making donations to charity. So, if you talk to your accountant before April 5th, you’ll make it easier for them to help you.
By acting before the end of the tax year, you may find that you’re able to help your business save tax legally and ethically.