You may be thinking you’re unlikely to ever be subject to an HMRC investigation, but nobody goes out of their way to ask the taxman to visit them, do they?
In fact, you don’t have to do anything wrong to get a visit from the taxman. There are numerous reasons for a HMRC investigation, including being picked at random.
So how do you keep the tax man happy to reduce your chance of an HMRC investigation and ensure that if it does happen, you’re prepared?
That’s what we’ll look at now.
So let’s get started!
1. Open a business bank account
Please! If you could ask the taxman one simple way to keep you out of trouble, he’d probably say to make sure your personal and business expenses are kept completely separate.
Think about this for a second: imagine you get a knock at the door from the tax man or a letter headed “Tax Investigations HMRC”. They’ll need to comb through your expenditure and records, so do you really want to sit and go through years’ worth of bank statements, trying to work out which costs are personal or business?
2. Keep your HMRC details up to date
Not getting emails or post isn’t an excuse that’ll fly with the tax man. HMRC has a user-friendly app and website to manage your personal information and read any messages from HMRC.
Download it today and request your government gateway ID. It doesn’t take long and will save you hassle in the long-run.
Once you’re set-up, it’s easy to let HMRC know of any changes to your address or personal information.
3. Keep your receipts
For watertight bookkeeping and accounts you need the following three things to claim any allowable expenses:
- The original receipt
- An online receipt logged in accounting software
- Proof of transaction from a bank statement
Many people choose not to keep the physical receipt. It’s up to you, but our advice is to keep it. Remember, we’re trying to get into good habits to make life easier for yourself in the long run, which brings us to our next point.
4. Record as you go
You know how it is. Bookkeeping isn’t top of your to-do list, is it? Ever. It’s one of those jobs you put off for months and reluctantly sit and do when you absolutely have to.
In fact, you may record invoices and expenses yearly, which isn’t something we recommend. At. All.
The most efficient way is to log everything as you go. That way you won’t miss anything off, and your accounts are always up to date.
Nobody wants to overpay tax, so why risk forgetting to log something you’ve bought as an allowable expense? You want to keep the taxman happy, yes, but at the same time, you want to be efficient with your tax return.
Apps like QuickBooks let you easily upload receipts on the go, along with other accountancy software. If you’re not sure how to get started with that sort of thing, book a one-off hour training session with us.
5. Save money for tax as you earn
Similar to keeping your bookkeeping up to date, something just as important (if not more so) is to save for your tax bill as you earn.
After you submit your self-assessment tax return and HMRC lets you know how much tax you owe, what you don’t want to happen is to have to find thousands of pounds out of thin air.
An easy way to prepare for this is to transfer 30% of anything you earn immediately into a savings account (which you leave alone).
Your self-assessment tax return deadline may feel like ages away, but we promise it comes around sooner than you expect.
Plus, if you save 30% of everything you earn, you’ll probably save more than you need. You might end up with a nice pot of money to go on holiday or reinvest back into your business.
6. Submit your tax return on time
This one’s simple, but make sure you’re aware of any applicable deadlines. The self-assessment tax return deadline is 31st January, but if you’re submitting your application by paper then it’s in early October.
Missing the deadline will annoy the taxman, and he may issue you with a fine.
7. Get and stay organised
Whether you’re logging expenses and raising invoices using online accounting software like QuickBooks or sticking the paper, make sure you’re consistent and be able to access all of your records when needed.
Not sure where to start? Our one-off hour training is the perfect foundation.
8. Get help
Numbers, bookkeeping, and accounts aren’t everyone’s cup of tea. That’s why we started our business – to help people who would rather pay a small fee (starting at just £25 + VAT an hour) for us to handle everything for you.
We can be as hands-on or off as you like. Check out some example package prices and our full list of services.
New to business and bookkeeping? Download our FREE Pay Less Tax Guide.