The end-of-tax-year to-do list for small businesses
If you run a business, get on top of your paperwork before 2020-2021 draws to a close.
End-of-financial year planning for small businesses can be difficult – not least because the date of the end of their year may vary. But with 5 April, the last day of the 2020-2021 tax year, almost here, business owners need to be on top of their affairs.
The 5 April date has particular significance for personal taxation. For many small business owners, the key consideration is often dividend payments; each tax year, you can take £2,000 worth of dividends from your business with no tax liability, but unused portions of this allowance cannot be carried over to the next tax year. So, if you can use the allowance, it makes sense to do so. Above £2,000, basic-rate taxpayers pay 7.5% tax on their dividends, higher-rate taxpayers 32.5% and additional-rate taxpayers 38.1%.
Remember staff paperwork
The other priority is sorting out pay-related paperwork for your employees. P60 forms, which summarise employees’ pay and deductions for the previous tax year, must be given to staff by 31 May for everyone who was working for you on 5 April. In addition, if you give your staff benefits beyond their wages, such as company cars, you must report this to HM Revenue & Customs by 6 July and pay any national insurance contributions due by 22 July.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
As for the tax affairs of your business, the first step is to double-check when your year-end actually falls. Many sole traders and limited companies set their year-end at 5 April to align with the tax year, but you may have made different arrangements; 31 March is a common alternative.
If you are coming up to your year-end, it makes sense to review whether your business is operating in the most tax-efficient way possible. For example, making investments in the business can substantially reduce your liability to tax, thanks to the annual investment allowance. This enables you to deduct up to £1m of investment from your profit before tax is calculated; and on 1 April, the government introduced an additional “super-deduction”, with 130% capital allowances available on qualifying investments.
Another possibility is to manage your income so that some of it falls into your next financial year, if this is helpful from a tax perspective. You can delay the completion of sales of goods to achieve this effect, although the process is bit more complicated for businesses that supply services. A more radical year-end tax planning strategy is to change your accounting year-end date, which business owners are entitled to do at least once every six years. Where your profits are falling, you may be able to save tax by extending your accounting period. Or you might choose to shorten it if profits are increasing.
Finally, do not overlook additional support your business may be owed. The government offers generous tax credits for research and development work, which is defined much more broadly than many businesses realise. By some estimates there is £84bn in unclaimed tax relief currently owed to SMEs.
Businesses worried about these issues – or unsure how to optimise their tax efficiency – need advice from an accountant. The cost of accountancy services can be offset against your profits for tax purposes.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
-
Revolut finally bags a UK banking licence – what's next for the fintech?
Revolut has finally been granted a UK banking licence following three years of negotiations with the regulator
By Kalpana Fitzpatrick Published
-
Could Labour impose a “double death tax” of more than 50%?
Speculation is mounting that capital gains tax will be reformed in the Budget - and one option is to charge bereaved families the tax on top of inheritance tax. We explain how it could work
By Ruth Emery Published
-
Could the new Growth Guarantee Scheme help boost your business?
The new government-backed Growth Guarantee Scheme is aimed at helping businesses recover from the pandemic. Is it worth considering and are you eligible?
By David Prosser Published
-
Revolut founder Nik Storonsky cashes in – what's next for the fintech billionaire?
Nik Storonsky has shaken up the banking industry with Revolut. He is now preparing a new project that could do the same to the venture capital sector
By Jane Lewis Published
-
Is local production making a comeback?
Companies return production closer to home and shorten their supply chains due to the pandemic and geopolitical turmoil. How should investors react?
By Dr Matthew Partridge Published
-
French election: an unexpected win for the left-wing
The snap French election delivered a stalemate. What does this mean for the country's stability?
By Dr Matthew Partridge Published
-
Business owners watch out for capital gains tax reforms
If you plan to sell your firm, look out for changes to capital gains tax rules by the new government
By David Prosser Published
-
How businesses can cut energy costs and boost efficiency
Here's how small businesses can monitor energy costs even though they don't benefit from the Ofgem energy price cap.
By David Prosser Published
-
What could a general election mean for apprenticeships?
Labour and the Conservatives have competing approaches when it comes to apprenticeships and funding young workers. But how are they supporting small businesses?
By David Prosser Published
-
Is online anonymity a necessity for economic and political freedom?
Online anonymity can be abused by trolls, but it remains central to our economic and political freedom, says Dominic Frisby
By Dominic Frisby Published