As businesses enter the new tax year on 6 April, ICAEW are urging businesses to get their finances into shape and prepare for new tax arrangements. UK companies will pay a reduced rate of corporation tax on their profits (cut to 20%). Employers hiring under 21s will also no longer face National Insurance Contributions tax bills. Clive Lewis, Head of Enterprise at ICAEW, offers up additional tips to help businesses get off to a strong start.
He said: 'Pre-empt any surprises by making sure your business is well-prepared for the new tax year. You can't race to the year-end deadline, it's crucial to make sure you've thought about all sides of your business from the start. While some of details are still to be ironed out for self-employed individuals, all types of business can take steps to prepare for changes in a new tax year.'
1. Get the record straight
You still need to have all your paperwork in check to satisfy the tax authorities. You'll need paperwork for VAT, and if you're self-employed you'll need the all-important self-assessment. Contact HMRC for the forms, or download them from the HMRC website. Check your systems provide all the information you want to run the business. For example, your trade debtor schedules should be produced in a way that you can chase delinquent customers. You must also review the performance ratios and management information. Ask whether the information helps you to achieve your business objectives.
2. Notify the tax authorities
If you're self-employed you must register for self-assessment, while a limited company must register for Corporation Tax. If you have taken on staff you will need to register for PAYE and you might want to voluntarily register for VAT.
3. Test yourself on tax liabilities
Check the forecast tax liability for the current year and ask what the likely liability is for next year. Ask your accountant whether you are making full use of all the available losses and capital allowances on equipment.
4. Reassess the future
Review budgets and ask whether they are still realistic or are there different trading circumstances which require a revised forecast.
5. If your business is new, start as a sole trader
In some circumstances it can be simpler to start trading initially as a sole trader as opposed to limited company. It's a good option when you're getting used to running a business and does not incur as many of the administrative burdens as running a limited company. Expenses incurred before trade commenced can be deducted from your first years profits. In order to do this, you will need records and receipts so that you can prove the expenses are valid and incurred exclusively for the purposes of the trade. A lot of different things can be expensed, including the likes of insurance, research and development, mileage and even the cost of raising finance.
6. Plan ahead
Make sure you have a business plan. A well-prepared plan can instil confidence in your stakeholders and reassure customers, suppliers, banks or investors that your business will flourish. A good business plan includes details of the key people involved, market research and financial forecasts (with the first year in months and the second in quarters). You should update the plan regularly and compare your performance with the plan – it will help you spot potential problems to be fixed.
7. Choose a qualified accountant
A chartered accountant can help with technical matters such as these, but also provide useful advice on business decisions and raising finance. There are several things to look for when choosing an accountant:
- A firm of a similar size to yours will be more understanding of the issues you face
- Consider their experience and reputation
- They should be members of a recognised accountancy body
- The firm you choose should also have professional indemnity insurance
Your relationship with your accountant will likely be a long-term one, so take your time and do your research. To get started and find accountants in your area, try using ICAEW's Business Advice Service – and your first session will be free.
8. But cash is still king
You must continuously review the cash flow of the business and monitor its progress. Look at financing arrangements and ensure they still represent good value and the running costs – including interest - are reasonable. If the answer is no, consider refinancing. Look to the future and keep a cash flow business forecast. If you're a start-up, make sure you have enough cash at the bank to continue trading, until your cash flow from sales is at least sufficient to meet your expenses and your personal living expenses.