Over the next several weeks we will be publishing extracts from:
Take The Plunge – 101 things you need to know before starting your own business
by Michael Carter
This week: Don’t panic about tax
However much we like to think of the tax-man as an ogre, the truth is that provided you are not out to cheat him and you provide requested information in a timely manner, he will do his best to help you.
Suppose you are a typical small one-man business with sales of less than £15,000 per year. Then all the tax man wants to know from you once a year are three figures: your total sales, your total expenses (totalled up from the notebook or spreadsheet in the previous chapter) and the difference which is the profit you are declaring for tax, or sometimes the loss you will use to reduce other income and so pay less tax.
If this is you, then these figures go on your tax return which you have months of grace to fill in and even then, if you owe tax, many more months to pay.
For bigger businesses the tax-man is going to want to see accounts but if you are a bigger business you probably need an accountant. Many really quite large businesses (thinking of sales of may be £1m a year perhaps) use the accountants in the high street before taking the step of employing one in-house. High street accountants, to finish the plug, will often offer low cost or free initial meetings and can always be asked to quote for whatever help you need. They will show they love you lots – by quoting you less – if you can show them you keep good records.
At lower cost still, i.e. free, is advice from the tax-man himself. If the tax man has asked you for something or about something and you don’t understand the request then ask him to explain to you what he wants. But ask when you first receive the request, not when reminders show up looking like threats.
Similarly, if you know you owe taxes but for the moment can’t afford to pay, it is far, far better to tell the tax-man what you owe and come to an arrangement for paying the bill over time, than doing neither.
Finally, remember the tax-man (and don’t be surprised, many also come in the guise of tax-woman) has the benefit of being able to look at many comparable businesses to yours and make comparisons. So if you are doing some moonlighting or otherwise seeking to hide profits, he can find out without necessarily talking to all your neighbours.
Top tip: Deal with tax matters as they arise – they will never go away of their own accord.
Useful website: www.direct.gov.uk/en/moneytaxandbenefits/taxes/index.htm