Self-Assessment penalties to watch out for!

As a sole trader or ‘freelancer’ in the UK, you’re liable to file a tax return. A tax return allows HMRC to calculate how much tax you owe for the year. Unlike an employed role, you must pay your tax in a lump sum and it may vary year on year, dependant on your income.

It is your responsibility to submit a tax return, or engage an accountant to do so for you. If you don’t submit your tax return, submit it late or submit incorrect information – you could be in a spot of bother.

Here’s our run-down of potential fines and penalties you may incur if you don’t file your tax return correctly.

Lateness

  1. I just missed the tax return deadline!

If your tax return is late, you could be hit with a nasty fine. For a self-assessment under 3 months late, it’ll set you back £100 – ouch!

  • I really missed the deadline…

Pushed it a little past 3 months? You’re looking at £10 a day, up to £900 – mega ouch!

  • I forgot my tax return entirely!

For late tax returns over 6 months, you’ll be charged another £300 (or 5% of the owing, if this is greater).

  • But I don’t owe any tax…

HMRC can’t be expected to know that you don’t owe any tax, unless you tell them. Your self-assessment tax return is how you tell them.

  • I did my return, but I paid my tax late/haven’t paid my tax bill…

You’re looking at paying some interest from the day after your tax year ends. Be safe, put the money aside and pay the bill when it comes in.

Failure to notify

In short, failure to notify is when you’ve neglected to tell HMRC about changes that affect your tax liability. For example: a new income stream, gone over the VAT threshold, unregistered business or any earnings not declared on your tax return.

You’ll pay a fine that is a percentage of HMRCs lost earnings from the tax you should have paid.

  1. Reasonable excuse

See, HMRC isn’t all bad! If it’s a genuine mistake or you have a good reason for getting it wrong, you’ll get let off… this time.

  • Not deliberate unprompted & prompted

Unprompted is when you tell HMRC that you’ve made a mistake and prompted is when you only tell them once they’ve started investigating you. For unprompted disclosures, you’ll pay 0%-30% within 12 months or 20%-30% if it’s been over a year.

  • Deliberate unprompted and prompted

As above, but unprompted will still set you back 20%-70% and prompted will sting you for 35%-70%. Best not to meddle with you taxes.

  • Deliberate and concealed unprompted and prompted

For those who are really silly and decide to dodge HMRC on purpose, you’ll be looking at up to 100% penalty charges. It’s just not worth the risk.

Mistakes

Mistakes are split into several categories, all with a maximum fine percentage. This percentage is calculated as a percentage of lost revenue, according to the taxpayers accountability and degree of guilt.

  1. Genuine mistake

Luckily, there’s no fine or penalty for this one. All the same, try and stay off HMRC’s radar.

  • Careless error

Double and triple check your tax return before you hit ‘submit’, or you might be stung with a 30% fine.

  • Deliberate error but not concealed

If you’ve tried to (badly) hoodwink the tax man, he’ll find you and charge you 70% for the privilege.

  • Deliberate error and concealed

Well, you’re deservedly in the doghouse and staring down the barrel of a potential 100% fine.

If you’re concerned about your tax liability, deadlines or making a mistake on your tax return, get in touch.

Or check out our tax return services.

5 ways financial forecasting could save your business

picture of financial report being written with blog post title above

“A financial forecast is an estimate of future financial outcomes for a company or project, usually in the context of budgeting, capital budgeting and/or valuation.”[1]

Any and every business has goals – where would you like your organisation to be in 5 years? 10 years? You’ll likely have benchmarks along the way that you’d like to hit.

For example, £xxx turnover by 2025 or £xxx in profit by next season.

If you don’t have a detailed financial forecast to keep you in check, you may soon be feeling like you’re driving somewhere with no map. From day-to-day operations, to long term planning, here are 5 ways that your business could benefit from financial forecasting:

  • It demonstrates the financial viability of your business

If you’re looking for funding, a business premises or to pitch to investors, you’ll need some data. A detailed financial forecast explains the future trajectory of your business and what the expected profits will be, based on your historical accounting and external market indicators. The better your financial forecasting, the more capital you can ask for when endeavouring to scale your business.

  • Allows you to guide your business in the right direction

Part of a thorough financial forecast includes external market and economic research. This level of detail allows you to steer your business in the direction of least resistance. If there are several business opportunities ahead, a financial forecast will help you to choose the most profitable and effective one for your business and/or industry.

  • Take control of cash flow

Knowing what your future bank account looks like, can help you to budget and control it early. Take control of your cash flow by ensuring that all future financial obligations are covered, your shareholder reports are constantly up to date and you’re saving money in the most effective areas.

  • Provides benchmarks for goal setting

Effective goal setting is paramount in the building of a business. If you have regular benchmarks to aim for, it can make the long term seem less monumental. Secondly, it can be easy to lose sight of benchmarks when you’re busy working in the business, rather than on it. By having clear and obvious benchmarks to hit at certain times of the year, the entire business can keep an eye on its direction and ensure that you’re making appropriate headway.

  • Identifies potential shortfalls and risks

Whilst financial forecasting is no crystal ball, it does allow you to highlight and eliminate potential future risks. As a living document, your financial forecast should alert you to money-pits before you fall into them.

  • Tells you what resources you need

If you know you need a cash injection or a new employee, but you don’t know how much you have to spend – a financial forecast will tell you. If a process or area of your business is draining more money than it produces – a financial forecast will tell you.

When it comes to finances, knowledge is power. Knowing your numbers puts you in the driving seat of your business. To get started, it is good practise to consider the regular, best and worst case scenario of any financial situation – this way, you’re already starting to think analytically when it comes to numbers.

If you need assistance when it comes to working out your financial forecast, get in touch today, or take a look at the services we offer.

 


[1] https://en.wikipedia.org/wiki/Financial_forecast