31st January is looming: Help your clients beat the Self Assessment panic
As you’ll know all too well, this time of year accountants are rushed off their feet. Okay, that’s a massive understatement. You’re completely drowning… in tax enquiries, preparing files and dealing with panicky clients. There are a million questions to answer, and of course there’s the usual worries about lost paperwork and problems paying.
You know your clients better than anyone, and will no doubt will be burning the midnight oil to pull them out of any holes. But if you’re finding the same stressed faces keep reappearing at this time each year, there are several things it’s well worth reminding them of for next time.
Help! I can’t afford my tax bill
You probably hear it in your sleep. But before we look at anything else, let’s just focus on the here and now.
As the 31st January gets closer this one will come up a lot. Tears, swearing and manic laughter (the client, not you… well usually) indicate that this is a good time to bring up HMRC’s Time to Pay. It’s a payment plan they can set up themselves if they owe less than £30,000 and meet other conditions.
Time to Pay means your client can pay off their tax bill in instalments. Always strongly emphasise to all your clients that they should never ignore an inability to pay their tax bill and hope it goes away. They (and you) will end up in a world of pain - you know this, but they might not.
How their payment schedule will be set up depends on a number of factors including their personal financials, and although there won’t be any further penalties (besides a possible late fine if they’ve missed the deadline) they will be charged interest.
Help calm them down by letting them know that Time to Pay is completely flexible. So they can overpay at any time, or the arrangement can be lengthened if things get tight. HMRC will also never take more than 50% of their disposable income.
Steering clients in the right direction for the future
There’s no doubt that prevention is better than cure. So once the initial panic has subsided and the latest tax deadline has passed, it’s time to discuss with your client how to better avoid sticky Self Assessment situations in future.
Bear in mind that Self Assessment tax returns apply to all sorts of scenarios. From freelancers and start-ups to rental income payments, pensioners and second jobbers, we’re not talking big businesses here. So although a lot of these tips may seem obvious to you, many will not be so obvious to them.
Encourage your clients to use accounting software
Accounting software will perhaps be most daunting to brand new small businesses, slightly older people or those who aren’t a fan of IT. But these days there are loads of cloud-based accounting programmes that are incredibly intuitive and easy to use, even for total beginners. We particularly recommend Xero as it integrates fully with Tax Cloud in case they later want to claim R&D Tax Credits. But other popular ones with small businesses include Sage, Netsuite and QuickBooks.
Explain the benefits clearly. Data about their income and/or sales and purchases can flow straight from their bank account to their books. This means they don’t need to spend precious time transcribing them. They can also get a financial overview at any time which for small business really helps with business planning. On top of that, Making Tax Digital is set to expand and will soon apply to sole traders and landlords. This means that accounting software will go from ‘nice to have’ to essential.
Make sure they maintain proper records
For sole traders and individuals especially, it’s easy to let things slide. But come Self Assessment time, proper records of revenue, outgoings, expenses, evidence of untaxed income and accurate dates - at a very bare minimum - are crucial.
Self-employed clients should also keep business invoices, receipts, bank statements, contributions made to pension schemes and evidence of charitable gift aid donations. Again, you know that but do they?
If your client is prone to a little too much ‘back of a fag packet’ stuff (and they’re not quite ready for MTD yet) they must at least set everything out properly on an Excel spreadsheet. Again this is something you can help them set up. It’s amazing how easily bits of paper, including important documents like P45s and P60s, can get lost.
Obviously there’s a chance HMRC may get back to them in future if there are any issues too. Explain the reasons why this might happen and tell them not to throw any relevant correspondence away!
If they’re struggling financially, go through their expenses and tax reliefs with them
Are they aware of all the expenses they can claim to reduce their Self Assessment tax bill? There are all the obvious ones of course - train fares, business insurance, that kind of thing. But many won’t know about the more unique ones to them. They may also need some help apportioning costs if they work from home, such as gas, electric, rent/mortgage and other utility bills. And of course, there’s capital allowances etc too.
Remind them that leaving Self Assessment to the last minute is a really bad idea
“While more than 10.7 million people submitted their 2019/20 returns by the 31 January deadline, the 1.8 million who failed to file is almost double the 958,296 from last year.” - ICAEW
Be sensitive though. We’re living through tough times, and many small businesses and freelancers have seen work decimated by Covid restrictions. For many this will be the first time they’ve not been able to pay their tax bill and the worry will be immense. Some people may have been bereaved, or struggling will illness. And yes, some will simply be completely disorganised. A non-judgemental ear and a few useful tips mean that next year’s Self Assessment payment will hopefully be smoother.
This article was brought to you by Myriad Associates
For over a decade, Myriad Associates has worked as a leading UK R&D tax consultancy filing R&D tax relief claims for both businesses and accountants alike. Offering 7 star service and a 100% success rate, we’re proud of what we do.
Call us on 0207 118 6045 or drop us a message to find out more.
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