Company owners should practise good tax habits year-round if they want to stay away from issues during tax season.
If you run a business, you’re probably not looking forward to another tax season. Who would? Everyone hates tax time, even your accountant. But just because you don’t enjoy this period doesn’t mean you should try to avoid it or procrastinate because you’ll face more challenging issues in the long run. Filing taxes is essential for all companies, regardless of their industry or size. While the process isn’t as challenging for small businesses as for large ones, it can easily overwhelm you if you lack the knowledge or necessary tools.
To have a stress-free tax season, consider employing some digital tools that free up your time and eliminate the risk of mistakes. Here are some recommendations on how to navigate tax time smoothly and without issues.
Organise paperwork and take advantage of digital tools
The preparations for tax season begin in advance by streamlining business practices and organising paperwork all year long. It’s wise to eliminate as much paperwork as possible and use digital documentation for receipts and financial information. There’s no reason to put the receipts in a shoebox now that you can store digital copies on a cloud-based tool that provides you with access to the documentation anytime and anywhere as long as you use an internet-connected device.
You could integrate a digital expense tracker into your operations to save time when preparing taxes. Whether you have an accountant or not, this tool proves helpful because it prevents mistakes. When browsing the market for expense tracking software, look for one that categorises your expenses so you can easily create reports when tax season comes. If you use a tool that allows you to organise expenses, sort them in classes such as mileage, business supply purchases, entertainment and meals. Professional programmes have auto-scanning features that enable you to take photos of receipts and log expenses in the database.
The HMRC-introduced Making Tax Digital initiative was designed to help businesses get their taxes right. At the moment, Making Tax Digital focuses on VAT submissions, but it will integrate Income Tax and Corporation Tax in the future. If you keep digital records, you’ll find it easier to comply with Making Tax Digital for VAT.
However, even if you employ a cloud-based accounting tool, it’s challenging to remove paper entirely from your operations. You’ll still have to store original copies of important documents such as contracts and agreements. It’s best to keep these numbers to a minimum and organise them well to make them easier to find when you need them.
Use a business credit card
Part of getting ready for the tax season is getting organised and automating as many of your processes as possible. The fewer manual operations you have left, the less prone to errors you are, and the less time you spend during tax time. A smart way to organise your corporate expenses is to use a business credit card.
The average business credit card automatically sorts your expenses into different classes, making it easier to track them when you need to create reports. Additionally, you have a backup record of your expenses if the HMRC requires it. Paying corporate purchases with a credit card also builds your company’s credit.
It’s wise to have two separate bank accounts for business and personal expenses because it’s challenging to track them in the long run if you pay using both.
Keep adequate records of your finances
A crucial part of the tax preparation process is ensuring all your financial records are intact. The HMRC requires businesses to keep documentation for a specific period. Good recordkeeping makes it easier to get your financial statements done and could help you during an audit. HMRC doesn’t have a statute of limitations regarding the period it audits. Discuss with your accountant the proper recording practices for your business and ensure you keep the paperwork for as long as the authorities require to prevent issues. It’s wise for your records to include all expenses tied to your company, from bank statements to credit card receipts and bank deposits. Keep them for at least three years or as long as your accountant advises.
Familiarise yourself with the latest regulatory changes and tax deductions
It’s no surprise that the pandemic brought a series of changes to the tax sector. Many of them influence tax regulations directly and could add to the list of tax deductions you’re eligible for. Many companies relocated to the remote environment during the pandemic, and if yours was one of them, ask your accountant what deductions you’re eligible for.
Research to find the latest regulatory changes and make a list of the deductions that apply to your business. If you run your company from home, you may be able to get a home office tax deduction.
If you fail to take advantage of all tax deductions available, your business loses money. Most corporate expenses like mileage, employee meals, office supplies and loan interest are deductible at the end of the year. This is an area where you should do your homework and consult a professional to make sure you claim all deductions applicable.
Spend time on taxes regularly
Approach the tax season as you would a fitness program. You don’t expect to get results if you hit the gym two times a month and only make working out a priority a month before your summer holiday. Same goes with taxes: start preparing for the season in advance and schedule tax work monthly. Taking two hours every month to ensure your digital receipts, books and payments are in order could make all the difference during tax time.
Let’s wrap it up
Handling tax preparation flawlessly is a common concern for businesses of all sizes. The last thing you want is to deal with financial issues and fees because you neglected to organise your finances. If you find the process challenging, don’t hesitate to ask for professional help.
With these tips in hand, best of luck preparing for the upcoming tax season!
