Like most tradesmen, filing your tax return and/or confirmation statement is probably the last thing on your mind. You may not even know what your legal options are. But who has time for stuff like that when you’re busy fitting kitchens, laying floors and installing new roofs, right?
Well, the government for one.
You might not care about filing that kind of information, but HM Revenue and Customs (HMRC) certainly does. And pleading ignorance won’t stop them from issuing you with a fine for not doing so.
Here are five ways you can stay in the HMRC’s good books, and avoid the dreaded ‘brown letter’.
1. Submit End of Year Accounts to Companies House
If yours is a limited company (which we recommend to all our clients for protection) Companies House expects you to file a copy of your End of your Accounts within nine months of your year end. If you don’t meet the deadline you’ll be fined £150 in the first month, £375 up to the third month, £750 up to the sixth month, and £1500 after that.
You can either:
- submit your accounts through your Companies House Webfiling account
- send a signed copy to Companies House.
Note: Unless yours is a large company that needs auditing (and believe me, you’ll know if you do), you need only submit your accounts in abbreviated format.
2. Submit End of Year Accounts to HM Revenue and Customs (HMRC)
If yours is a limited company, you’ll also need to file a copy of your End of Your Accounts and Corporation Tax calculation within nine months of year end. While there’s no fine if you submit them within the year, you will be charged 2.75% interest on anything you owe. However, if you submit them after the year is up you’ll be fined £100.
You can submit them to HMRC through the Government Gateway.
3. Submit your Self-Assessment before year end
If you’re self-employed, or a Director of a business, then you need to submit a Self-Assessment by the end of January each year.
Factors such as your assets and how you pay yourself can make it quite complicated, and we suggest getting help from a tax accountant such as Level Accountants.
The fines for missing the deadline start at £100, if you don’t pay by the end of Feb you’ll also have to pay a surcharge of 5%.
4. Submit your VAT return every quarter
Most builders and tradesmen we deal with are VAT registered—especially if they supply material.
VAT must be submitted within one month and seven days of the VAT period finishing. As an example, let’s say the last day of your VAT period is February 28. That means you’ll need to submit it by April 7, and pay it between April 12 and April 15. (Well, that’s if you‘re using direct debit. If you’re doing it through online banking you’ll need to pay even sooner.)
If you miss the deadline HMRC will fine you a percentage of the submission, although they will let you off once without a fine. The rate starts at 2.5%, and increases each time you’re late to a maximum of 25%.
Fortunately, it’s easy to file your VAT online using accounting software such are Xero. Or you can ask your accountant to do it for you (hint, hint).
5. Don’t forget to pay tax for your subcontractors
Chances are you’d rather fix a broken sewer pipe than deal with the Construction Industry Scheme (CIS). But the fact is that if you employ subcontractors you need to:
- register for CIS
- pay tax on their behalf. (The standard rate is 20%.)
Payment is due on the 19th day of the following month, and HMRC will fine you £100 for every late submission or payment.
Is setting up a limited company or registering for VAT worth all this?
As you can see, most of these requirements are applicable only if you set up a limited company or register for VAT. So, the question you’re probably asking yourself right now is, “Why should I bother doing either?”
Well, here are two very good reasons.
1. Having a limited company protects you if you’re sued. Even if the worst comes to the worst, the most you can lose is the business—your personal possession (such as your house) are safe.Yes, you can get insurance if you’re a sole trader. But most policies are capped, which means you’re still at risk to some extent. Personally, knowing I’m protected is worth the extra bit of paperwork.
2. Operating your business as a limited company gives you far more flexibility in how you organise your earnings. I don’t have the time (or the space) to go into it all here, but it really is better to be flexible. Successive chancellors are always moving the goal posts for the self-employed, and tradesmen seem to get a worse deal each year.
VAT can indeed be a double-edged sword. But if you’re working for other businesses, or on new builds, it can be a great way to increase your profit. And isn’t that why you’re in business in the first place?
So get in touch with us today, and let us show you how to use it to your advantage.