Key points
- HMRC is cracking down on late filings, with penalties rising.
- Accounting professionals hold a vital role in helping small businesses comply.
- We provide the top three pieces of advice to help small businesses avoid penalties.
It’s long been the top priority creditor for small businesses, but as HMRC ramps up penalty and investigation powers, it’s more critical than ever that small businesses pay on time.
From 1 May 2024, HMRC set its late payment interest at 7.75 per cent, the highest it’s been for 16 years. New rules mean taxpayers will become liable for a fixed £200 penalty once they have breached a certain penalty point threshold for consistently missing tax deadlines.
The revenue is also standardising penalty regimes for late payments across several tax types, including income tax, VAT, and corporation tax. When payments are over 30 days late, all liabilities will incur penalties totalling up to 4% of the outstanding tax due.
With data from Premium Credit showing that nearly one in twelve small businesses – around 440,000 – said they have missed tax payment deadlines in the past year, we could see a significant increase in small businesses being stung by the changes to the penalties this year.
What do accounting professionals think of the changes?
Stef Fielding, Tax Director at Sapphire, says the impacts are twofold. While stricter penalties may help to encourage timely tax payments, they can also unfairly penalise individuals facing legitimate delays beyond their control.
HMRC’s late filing penalties have long been well established and clear, says Jonathan Cooper, Founder and Director of The Director’s Helpline, but the stricter penalties are likely to negatively affect UK businesses. He says that the added penalty per day after three months has created more confusion, fostering unnecessary panic for business owners.
Stef Fielding, Tax Director at Sapphire
To get their returns in on time and avoid the penalties, it’s imperative that small businesses have the right processes in place and seek advice to help avoid this type of situation. So, how can accounting professionals support them?
Don’t leave it till the last minute
A top consideration for small businesses, according to accounting professionals, is allocating time throughout the year to ensure all paperwork is accurate and up to date.
For Fielding, “it comes down to a shift in mindset.” Many taxpayers tend to address their tax obligations near tax payment dates and filing deadlines. However, this inevitably leads to a rush during tax filing season and can lead to late returns.
Whilst a self-assessment return does not need filing until 31 January, for example, most taxpayers will have all the information they need to file their return by the middle of April in the previous year. Fielding encourages taxpayers to deal with their affairs once they have all the available information, as opposed to just ahead of filing.
Accountants have a role in helping to instil this mindset shift, by emphasising the importance of clear and evidenced financial records to clients. Fielding adds that having all the information available can improve small businesses’ visibility of their overall financial health, giving them confidence that they are on track.
Utilise accounting technologies
Rapid advancements are ever being made in financial technology and making managing their financial records easier for small businesses is one area in which it excels.
Cooper says software can be used to create and set clear payment deadlines with automated reminders so that you have plenty of time to upload and submit invoices. It can allow you to generate, update and track invoices, making it easier to submit them, as well as tracking VAT and other tax payments.
He warns, however, that “being fully reliant on a software is inadvisable.” Accountants should be conducting regular checks on creditors and debtors themselves as well, which will “greatly reduce the chance of anything being missed, ensuring payments are made on time.”
Cooper adds that it may even be worth accountants working with the available software to produce management accounts monthly, to provide further insight on clients’ finances.
Work closely in partnership with clients
Small business leaders are usually laser focused on driving their business’s success and placing less emphasis on the finance and admin side. This is where they depend on their accountants to stay on top of tax deadlines.
Fielding encourages accountants to keep dialogue with clients open: “Speaking with clients once a year, close to the filing deadline, will offer little to no visibility of any issues.” He says that regular interaction with clients will allow accountants to help their clients plan in advance, giving them more chance of meeting the deadlines.
Finally, Cooper adds that accountants should help clients put strong debtor and creditor controls in place to minimise risk and ensure smooth financial operations. Establishing secure approval procedures for purchases, clear credit policies and strong, direct payment terms can safeguard businesses from delayed payments.
HMRC’s crackdown on late filings should be seen as a wake-up call for small businesses to stay organised and proactive when it comes to their tax. Filing on time is crucial to avoid escalating penalties, and accounting professionals have a duty to ensure clients maintain accurate records throughout the year to prevent costly mistakes.
Want to keep up with topical issues in the tax world? Visit IFA’s Tax Series 2024 to learn more.
