When you run a business in the UK, one of the things you don’t want to deal with is a tax investigation by HMRC. The sad truth is that inspections can often happen on a random basis, even if you do everything “by the book” as it were.
If you’re unlucky enough to find yourself in the middle of a tax investigation, there’s usually one reason for it: IR35. In case you didn’t know, IR35 refers to the legislation aimed at those who disguise their employment. In other words, people that run a business but, to all intents and purposes, are just an employee of one company only.
Are you worried you might get subject to such an investigation? If so, keep reading to find out some practical steps on how to avoid one.
Do work for more than one client
As obvious as it sounds, you should only set up a business if you’re planning to do work for several different customers. If you want to avoid IR35 investigations, and you’re only working for one firm, consider using an umbrella company instead.
If you’ve not heard of umbrella companies, let me explain. They operate in the same way as if you were temping for a recruitment agency. They take care of all your taxes and National Insurance and pay you a set wage. The beauty is you don’t have to physically set up a company in your name to do this. After all; you’re just an employee!
Don’t be late with your tax returns and payments
Another way people often draw attention to themselves from HMRC is if they don’t file their tax returns on time. These include self-assessment returns, VAT and corporation tax.
Are you consistently late filing and paying your taxes? If so, you can almost guarantee an investigation into your tax affairs! The easiest thing to do is to save any money you receive from clients to cover your tax bills.
For example, let’s say you receive £120 as payment for an invoice. You should put aside £20 for VAT, and £20 for corporation tax. The rest can be used towards whatever you want. Bear in mind if you pay National Insurance, you’ll need to put aside some money for that too!
One of the reasons startup businesses fail is because they don’t put money aside to cover their tax bills!
Use an accountant
Last, but not least, it is crucial you have a qualified accountant handle your tax affairs. There’s nothing in the “rulebook” that says you cannot deal with your taxes yourself. But, if you’re running a limited company, for example, it just makes sense.
Why? Because accountants will find ways of saving you money from a tax point of view. For instance, they’ll show you how to document expenses like vehicle mileage and entertainment costs when meeting clients.
In general, the more costs you’ve got, the lower your tax bills will be. Bear in mind the above tips, and you’re unlikely to suffer from an IR35 or any other tax investigation by HMRC!
Latest posts by Ken (see all)
- Why your business needs kerb appeal - February 18, 2019
- The trading business doesn’t require too much attention - January 15, 2019
- How to plan your career in the investment industry - January 9, 2019