Contractors face penalties for registering late
Some of the most common taxes that self-employed and freelance workers register to pay in the course of business are about to attract heftier 'failure to notify' penalties.
From April 1st 2010, the penalty for taxpayers who fail to notify HM Revenue & Customs of changes to their tax status will apply to 20 separate taxes.
They include VAT, income tax and capital gains tax, as well as Class 4 National Insurance Contributions - payable on profits between £5,715 and £43, 875 for the 2009/10 tax year.
Affected freelancers should note that a standard penalty charge is expected to be between 10%-30% of the tax due, up from the current penalty structure of between 0%-15%.
To avoid being stung, taxpayers must notify HMRC when their circumstances change, such as where their turnover reaches a registration threshold or they start a new business activity.
It follows that business owners who exceed the VAT registration threshold and do not inform HMRC within 30 days of doing so are at risk of a penalty.
Penalties will also be imposed on taxpayers who make a taxable profit from self-employment for the first time but fail to tell HMRC that this makes them liable to pay tax.
In related guidance, the Revenue also said a failure to notify penalty can be imposed on:
- Taxpayers who have not received a self-assessment return or 'notice to file' form and fail to inform HMRC that they need one because they have untaxed income or capital gains to declare
- Businesses that have not received a corporation tax return or 'notice to file' form and fail to inform HMRC that they have become chargeable to tax
In light of the tougher regime, taxpayers are being advised that they have the right to appeal the penalty imposed to a tribunal or request an internal review by HMRC.
Seeming almost related to the changes at HMRC, tops tips for businesses on keeping good records were issued this week by Business Link. They include:
* Set up a reliable system for keeping full and accurate records of your income and expenses from the outset
* Keep records throughout the year - update your records regularly, rather than letting the paperwork pile up
* Keep your records for a minimum of six years
* Keep records to show what you have bought or sold relating to your business. This should include details of all cash transactions as well as invoices and receipts
* Keep bank statements and building society books - this is particularly important if you don't have a separate business account. You should be able to show clearly what you have spent personally and on the business.