Best practices for heading into the new tax year

Transitioning into the new tax year is a prime opportunity for business owners to adopt strategies that not only improve operations but also enhance financial health and potentially lead to tax savings. ​

Here we unpack six strategies designed to position your business for the start of the new tax year.​

Having a good grasp of your tax responsibilities means knowing when you have to file a tax return, when you need to pay your tax liability, when does the new tax year start, and the period which this tax return covers. ​

For sole traders, the new tax year 2024 runs from the 6th of April to the following 5th of April. Your tax return is due by the following 31st of January, and your tax liability is also due to be paid in full on this date.​

Unless this is your first year of operating as a sole trader, or your liability is less than £1000, then you will need to make payments on account on the 31st of January (during the tax year), and 31 July (following the end of the tax year), ahead of your final balancing payment on 31 January (following the end of the tax year).​

Directors of limited companies should be aware of the dates above for their income tax return, and also know the tax obligations for their company. ​

A company may have any financial year end, many choose to have a year end that aligns with the tax year end (31 March) or with the calendar year (31 December).​

Most companies will need to file accounts with Companies House 9 months after the year end. Their corporation tax liability will need to be paid 9 months and 1 day after the year end, and the corporation tax return needs to be filed 12 months after the year end.  ​

For both sole traders and companies, additional tax obligations will exist if the business is registered for VAT or has employees. ​

Admittedly, keeping these dates and tax obligations clear can be a challenge, underscoring the importance of either staying ahead yourself, or engaging a dependable accountant to track these deadlines for you. ​

In order to accurately calculate your tax liability you must maintain precise financial records from the new tax year start date. ​

A common challenge for many business operators is differentiating between business and personal expenses. This distinction is paramount, irrespective of whether you're a sole trader or managing a company. Ensuring a clear separation between business and personal transactions is fundamental.​

Utilising your business card for personal expenses complicates your tax return preparation, necessitating the removal of such transactions to accurately determine your profit.​

Similarly, if personal accounts are used for business purchases, it becomes necessary to sift through bank statements to identify these expenses for inclusion in your tax return. Blending business with personal expenses not only adds to the workload during tax season but also heightens the risk of mistakes, potentially leading to overpayment on taxes.​

For those operating under a limited company structure, it's legally mandatory to have a dedicated bank account since the company operates as a distinct legal entity from its owner(s). Viewing the company’s finances as separate from personal funds is essential.​

While sole traders aren't legally obliged to use a separate bank account for their business, taking this step is highly advisable. The clarity it brings to your financial management can significantly ease the process of handling taxes.​

Robust bookkeeping isn't just a pillar of effective business management; it's a lens through which the financial health of your business can be assessed, guiding both operational decisions and tax liability predictions. Integrating digital platforms like Xero or QuickBooks into your bookkeeping practices can elevate this necessary task from a mundane obligation to an efficient, routine process.​

With a current Xero file, you gain instant access to a snapshot of your business's performance, enabling the identification of trends, such as which products or services are excelling or underperforming, and providing an early estimate of potential tax dues on accrued profits. While surprises may have their charm, an unforeseen sizeable tax bill certainly does not fall into that category.​

If you’d rather do anything besides bookkeeping, or you repeatedly leave this task until year end, engaging a professional bookkeeper could be a strategic move. ​

A bookkeeper can diligently maintain your financial records, affording you the freedom to dedicate your time to the aspects of your business that you excel in, enjoy the most, and that contribute to your revenue stream.​

Nearly every business owner, whether operating as a sole trader or within a corporate structure, recognises that taxes are levied on business profits. It's essential, then, to grasp how 'profit' is determined, with many entrepreneurs pondering over which expenses are considered allowable deductions for tax purposes.​

The key principle to remember is that expenses incurred 'wholly and exclusively' for business operations are generally deductible when calculating taxable profit.​

Consider, for instance, if you're producing bottled fruit juices and purchase glass bottles for packaging. This expense, incurred solely for your business needs, is an allowable deduction.​

This seems obvious, but complications arise when you purchase something that might be used for both your business and for personal use. For example, you might buy a car that you intend to use for your business, visiting customers and suppliers for example, but you might also intend to use it for picking up the kids from school, or your road trip to Scotland in the summer. ​

Now, depending on whether you trade as a sole trader or through a limited company, the treatment of the personal use element will be slightly different, and your accountant will be able to do the sums to work out what deduction can be claimed. In both cases, however, the tax relief will be limited if there is an element of personal use. ​

Thus, it's wise to carefully consider the dual-use nature of significant purchases throughout the fiscal year, as expecting full tax deductions for such expenditures is unrealistic.​

Familiarising yourself with the nuances of tax-deductible expenses can significantly enhance your decision-making process over the year. Understanding these regulations can be complex, which is why at Beany, we provide our clients with unlimited support and advice for everyday inquiries. This ensures our clients can confidently discern between deductible and non-deductible expenses, offering peace of mind that expert guidance is always within reach.​

A myriad of allowances and reliefs exist to benefit both business owners and individuals, with the tax-free personal allowance being the most commonly recognised. However, the spectrum of available benefits extends further to include the capital gains annual exempt amount, employment allowance, R&D tax credits, among others.​

Navigating the landscape of tax-saving opportunities through these allowances and reliefs can be daunting, particularly as the governing rules and rates are in constant flux. This complexity underscores the value of engaging a proficient accountant. ​

An adept accountant does more than ensure compliance through timely filings of accounts and tax returns; they stay abreast of legislative changes, guiding you to optimise tax savings by leveraging various allowances and tax reliefs effectively. Get in touch with Beany today to learn more about how we can support you on your business journey. ​

Drafting a budget is an important practice for businesses of all scales. However, for small business owners, the sheer volume of competing tasks often relegates budgeting to the back burner, leading to situations where budgets are either hastily constructed and forgotten, or entirely neglected.​

The significance of a well-thought-out budget cannot be overstated. It serves as a financial compass, guiding cash flow forecasting and monitoring to ensure sufficient funds are on hand for forthcoming expenses, thereby averting potential cash crunches that could disrupt operations. ​

Furthermore, a budget acts as a blueprint for future planning, whether for investing in new assets, exploring expansion possibilities, or augmenting the workforce. It instills a culture of financial discipline and accountability, spotlighting areas ripe for cost reduction or efficiency enhancements, directly influencing the bottom line. ​

Moreover, a budget is instrumental in assessing business performance, enabling more strategic decision-making.​

The creation of a budget is merely the beginning. Regularly revisiting and contrasting actual financial outcomes with budgeted projections is critical. This routine check-up allows for the prompt detection of any deviations, facilitating swift corrective measures to realign with financial targets.​

A new financial year presents an ideal opportunity to implement strategies that enhance your business's financial well-being. ​

Key actions include:​

These steps can collectively equip you to approach the upcoming tax year with confidence.​

At Beany, our commitment lies in empowering small businesses with unwavering support, offering advice and guidance to effortlessly navigate through the intricacies of tax compliance and financial stewardship. If you have any questions or you would like to learn how Beany can help you, reach out today.​