Top Tips to Avoid Upsetting the Tax Man!

| October 17, 2013

Financial managementIf there?s one area that the self-employed seldom give enough attention to, it?s taxes. ?In a sense, this is understandable. Financial management is not the most interesting affair and the actual paying of tax is ?in itself ? a bit rubbish. ?However, not completing your tax return means that not only will you end up in court, but quite probably in jail. ?Here, then, are some of the key ways to avoid bringing the wrath of the taxman down upon your head (besides getting an accountant to deal with all of your business accounting needs, which is a no-brainer).

Ensure that your lifestyle squares with the income you’re reporting

Of all the things that will raise the suspicions of a tax investigator, this is probably the biggest. ?Put simply, a person living a lifestyle that?s far more glamorous than they should really be able to afford is going end up being questioned- and rightly so! ?Whilst there’s nothing wrong with a discrepancy or two (people do obtain money from sources that aren?t work), it?s important to ensure that the taxman is made aware of where any extra money is coming from.

Don’t take the biscuit with expenses

The idea of ‘writing something off as expenses’ tends to be misunderstood, and often leads to people claiming for absolutely anything that can be even slightly linked to their business. ?Needless to say, this is not legal. ?You can claim expenses, of course, but only ones that are directly linked to your business. ?For instance, claiming off car insurance, road tax and petrol costs is fine, but only if said costs were incurred in direct service of the company. ?You can’t claim 100% of your petrol costs off, only the petrol that you used to travel back and forth to work-related destinations. ?The same goes for business lunches and evening dinners: if you try and claim for every meal you eat during the tax year, don?t be surprised when the authorities come calling!

Be cautious in dealing with cash

Most modern office firms (and a lot of blue-collar companies) will take payment through direct bank transfers. ?However, it?s still virtually impossible to avoid petty cash in some capacity, even if it?s just to pay for tea and coffee for your employees! ?It’s important to ensure you keep really tight records, as petty cash above a minimal level will usually be treated with suspicion by the authorities, simply because it?s so easy to skim a bit off the top here and there. ?If it?s at a really minimal level, it might not be worth the hassle at all. ?(?Yay, we?ve saved ?3 on our tax return!?).

Double check your employee requirements

If your company has reached the stage where you’re hiring people – either on a PAYE basis or as a contractor – then it’s essential to ensure you’re meeting the necessarily obligations regarding their salaries. ?Employment taxes such as National Insurance Contributions are a big part of a firm?s tax obligations, so consult an expert on the matter to ensure you?re paying everything that you should.

Only claim for genuine work

Another aspect of tax that the revenue services are very suspicious of is the hiring of independent contractors on an ongoing basis. ?Because this can be written off as a legitimate expense, the taxman is likely to check into whether or not these contractors are really working for you. ?The reason? ?Simple: some people will ?hire? a family member and pay them a salary for not doing any work. ?The money stays in the home, but can be written off the businesses? profits. ?The simple method for avoiding an issue here is to always ask for (and provide) invoices and proof of payment (not to mention a record of the work that was carried out).

Always report everything

Never, ever forget to report a significant payment to the revenue service. ?If you’ve failed to do so for a genuine reason, then immediately consult a tax expert to advise you on the best ways to proceed.

Top Tips to Avoid Upsetting the Tax Man!


Category: Finances

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