smallbusiness.co.uk: Helping your business think big

Over the busy and expensive Christmas period, many people will be waking up to a financial hangover on New Year’s day. SmallBusiness.co.uk and Tracy Ebdon-Poole of TaxCalc.com offer these top tips to keep your business out of the red and get your new year off to a healthy start.

Don’t forget to file your tax return - Last year ten per cent of tax returns were handed in after the 31 January deadline, leaving the offenders open to penalty fines. Don’t panic if you have forgotten your tax return so far - there is still time to submit it.

Keep you books up to date - You must keep a record of all income and expenses and keep the documentation for, effectively, six years after the end of the tax year. HMRC has issued a booklet explaining the records a self-employed individual should keep. Click here to download it.

Start filing paperwork now and save yourself a scramble next year when you are filing tax returns. Remember also to check the tax relief to which you are entitled.

Don’t believe everything you hear - There are lots of myths about the expenses that can be claimed for tax purposes. Tax relief is due only for expenses incurred wholly and exclusively for the purposes of the business, although in practice HMRC does allow proportionate claims to be made for assets like cars, which are used partly for business and partly for private purposes.

Plan ahead and have cash ready - The income tax payable for 2005/06 is due on 31 January 2007. A payment on account of the 2006/07 liability will be payable on the same day. This is 50 per cent of the previous tax year. In a business’s first year, this means that your tax bill could be 150 per cent of the tax you owe. Make sure the cash is there to pay the bill.

Remember that interest will start to run immediately on unpaid tax. In addition, there is a five per cent surcharge on all tax still owed 28 days after the deadline (the end of February). This equates to an annual interest rate of 65 per cent. The surcharge is repeated in July.

Self-employed? Work from home - If one room was used partially for the business you could apportion all household expenses (including heating, lighting, rates and mortgage interest) and claim a proportion. Beware of using a room at home exclusively for business as this could put you in danger of losing some capital gains tax exemption when you come to sell the property.

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