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Tax and Small Businesses

Updated on March 13, 2015

Advice, Information and Opinion for UK based SMEs

This hub is aimed primarily at UK-based small businesses providing information about tax-related issues from a London-based chartered accountant. However, some of the general advice is relevant to all small businesses wherever they are located in the world.

HMRC Proposes New Measures For Serial Tax Avoiders

HMRC, the UK tax authority, have recently revealed that they are developing new measures in order to tackle serial tax avoiders. They have made no secret of their attempt to clamp down on tax evasion and their proposed new sanctions showcase their further attempts to try to deal with the problem. In particular, these new measures are aimed at the promoters of avoidance schemes as well as those who persistently use such schemes. David Gauke, the Financial Secretary to the Treasury, says that the message is clear – “It is time to get out of avoidance and start paying your fair share.” He hopes that the new sanctions will encourage people to do so.

Before revealing what the new measures for serial tax avoiders are, it is first vital to point out that there are indeed already measures in place to try and combat this problem. HMRC have revealed that they have already issued notices worth in excess of £1 billion to avoidance scheme users that demand they pay their taxes upfront. This is part of the Accelerated Payments regime that was introduced in 2014. The regime has the purpose of acting as a way of reducing the incentive of engaging in tax avoidance. However, the Accelerate Payments regime is clearly not enough, and thus HMRC have proposed further sanctions to try and tackle a small hardcore group of individuals that use avoidance schemes on a continual basis. The new sanctions will include penalties amongst other measures.

Nevertheless, what makes these new sanctions different from other measures that have already been put in place is the fact that they do not merely focus on the taxpayer. Instead, HMRC are adapting a two-pronged approach, meaning that they are also going to be focusing on the promoters of these avoidance schemes. Fines of up to £1 million could be introduced, as well as a naming and shaming policy. If this comes into play it is likely that it will have a serious impact on the number and efficacy of any new schemes that are introduced into the market.

HMRC have published their proposal online, in a document entitled Strengthening Sanctions for Tax Avoidance. To sum up the main points, this is what the consultation proposes…

- Publishing the name of serial avoiders and the names of those who promote avoidance schemes.

- Surcharges for repeated use of schemes.

- Serial avoiders will be subject to special measures, this could include restricted access to tax reliefs, conduct notices and additional reporting requirements.

- GAAR-specific penalty or surcharge implemented.

- New threshold for the ‘promoter of tax avoidance scheme’ rules that were introduced last year.

As you can see, HMRC are certainly clamping down on anyone that is considered a serial tax avoider, as well as those that promote tax avoidance schemes. Whilst it may be tempting to use such a scheme, it is certainly not worth it. Instead, employ an accountant. They will present you with the most effective and legal ways of reducing your tax bill to ensure you pay as little as possible without breaking the tax laws.

A Guide To UKTax Penalties

No one wants to be subject to a penalty – that’s for sure. However, inaccuracies and missed deadlines can lead to companies having a high price to pay. This is one of the main reasons why so many businesses elect to hire a chartered accountant instead of handling their tax return themselves. By doing this, they can be certain that everything will be dealt with correctly and above board, and thus they are unlikely to experience the dreaded moment when the tax authorities contacts them to inform them that they are subject to a penalty.

One of the main reasons why people find themselves facing a fine is because they file their tax return late. Leaving your tax return until the last minute is certainly not advised. HMRC aren’t going to make allowances for being unorganised, especially when you have had months and months to complete your return. However, HMRC do state that the following are potential reasonable excuses they may accept…

  • Postal delays that could not have been predicted
  • An unexpected hospital stay that prevented you from dealing with your tax affairs
  • Service issues with HMRC online services
  • Your partner died close to the payment / return deadline
  • A fire prevented you from doing your tax return
  • Your computer failed during / before filing your online return

Thus, if you do have a reasonable excuse and you can prove it to be the case, you may avoid the penalty in question. But there are no guarantees and the penalties can be quite expensive. Here are some of the penalties in place for missing the submission deadline…

  • Self-Assessment: You will get a penalty of £100 for the first three months of late submission and payment. After this, additional charges apply.
  • Payroll: You will be subject to interest charges if you do not pay by the 22nd of every month. There is a yearly penalty depending on how many employees you have, e.g. £100 for those with nine or less employees.
  • VAT: You will be subject to a surcharge if you pay late, which depends on your turnover. Thus, if your turnover is more than £150,000 and you have defaulted for the 5th time you will have to pay 15 per cent or £30, depending on what is more.

Aside from late payments and submissions, the other reason why you may be subject to a penalty is if you make errors on returns, paperwork and payments. If this has been done deliberately you will obviously be subject to a large fine. However, if you have done this unintentionally, you still may face a penalty if HMRC deems you to have acted with a lack of ‘reasonable care’. This typically means that you have not kept your files and records up to date. You can see more about the penalties for errors below…

  • Errors as a result of a lack of reasonable care: Between 0 and 30 per cent of the extra tax due
  • Deliberate errors: Between 20 and 70 per cent of the extra tax owed
  • Deliberate and concealed errors: Between 30 and 100 per cent of the extra tax due

Reasons SMEs Should Hire An Accountant

One of the biggest challenges for SMEs is being able to juggle multiple roles and deal with all the standard practises that come with running a business, such as bookkeeping and paying taxes. Whilst a lot of small business owners want to handle everything in-house, as they fear outsourcing is an unnecessary expense, it is certainly worth thinking about hiring a chartered accountant. Many can provide simple ways to budget effectively for accountancy costs such as via a fixed-fee accounting service and here are some ways in which they could provide invaluable help:

Create More Realistic Business Plans

An accountant can give you invaluable help when writing your business plan. They can devise reports, including financial projections, with the aid of accounting software. This will help you to create a much more professional and realistic plan.

Increase Efficiency And Save Time

One of the main benefits associated with hiring an account is that you will save time and thus be able to focus on the core of your business, i.e. what makes you money. This gives you the perfect platform to excel and ensures paperwork, finances and other technicalities aren’t holding you back.

Help With Applying For A Business Loan

The main determining factor as to whether you will be granted a loan is your ability to pay it back. Banks and financial institutions will want to know how you are going to repay the money they lend you. An accountant will help by presenting projections and relevant figures to convince the lender to agree to the loan.

Completion Of Tax Assessments

An accountant will be able to ensure you comply by the tax regulations that are in place. There are severe penalties for businesses that do not pay tax on everything they are meant to. In a lot of cases business owners do this by accident, as they do not fully understand how to fill in their tax returns. An accountant will make sure everything is held above board whilst also providing you with advice on any tax breaks so you can get the best value claim reward.

Assistance With Auditing

Once your company begins to grow, i.e. reaches a specific turnover or certain size, you may need to be audited. This can be expensive, time consuming and very stressful. You will definitely reap the rewards of an accountant during this time, as they can make sure you comply with the audit and tax compliance laws.

Peace Of Mind

Last but not least, you can have the peace of mind that everything is being handled above board. You don’t have to worry about taxes or anything going wrong during the audit process.

To conclude, from increasing efficiency to ensuring you comply with the legal regulations that are in place, there are many different reasons why you should consider hiring an accountant for your small business. Whilst you may view this as an unnecessary expense, a good accountant will actually save you money. Thus it is certainly worth taking the time to search around and find the best accountant for your needs. Look at their experience and reputation. It is always a good idea to read reviews that have been left by others.

An Overview of Corporation Tax rates

Corporation tax
Small Profits Rate 1
Upper Limit 2
Marginal Relief Band Lower Limit 2
Upper Limit 2
£1.5 million
£1.5 million
Marginal rate
Full rate
UK Corporation Tax Rates Courtesy of HMRC


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