Putting a Spark into Financial ManagementOpinion
Posted by: electime 15th September 2021
You’ve got your head down running a business and trying to make up lost ground after the last 18 months, thanks to a slowdown in construction activity and underlying market demand. Between managing workloads and keeping a steady stream of new business coming in, the job of staying on top of finance and admin can often seem overwhelming – made worse by the effects of COVID-19.
As such, proactive financial management in the wake of a global pandemic is vital – keeping an eye on the books and balancing income and outgoings has never been more important. But, for self-employed electricians and independent contractors, what are the key things to remember in a tax year defined by the coronavirus?
Keep on top of the books
It’s easy to lose track of invoices and expenses if you don’t proactively manage your finances all year round. Keep good paper trails and, if you process expenses manually, make sure you have a rigid filing system for your forms, invoices and receipts as any lost paperwork could lead to a hefty penalty from HMRC.
Using an online invoicing system is also worth considering. This allows you to invoice electronically and access real-time data and all the information you need for a tax return at the click of a button.
Avoid costly mistakes when it comes to tax returns
It’s really important that you keep all relevant documentation to hand, so you can provide the most accurate information about untaxed income and expenses relating to those earnings. These documents include: P60/P45/P11D forms, invoices and receipts for your self-employed business or partnership, bank statements, property income and expenditure, Capital Gains proceeds and costs and also savings/investment certificates. When it comes to self-assessments, it’s all about the detail, so make sure you declare everything, in full.
The most common mistakes people make are missing that all-important deadline of 31 January for online submissions; not keeping records; inaccuracy of the information submitted; claiming expenses incorrectly; and ticking the wrong boxes!
However, if you realise you’ve made an error, you have up until the filing deadline of the year after to make any changes. For example, if you’re submitting your tax return on 31 January 2022, you have until 31 January 2023 to amend anything you need.
Budget for January and July tax bills
There are some simple and easy steps you can take throughout the year, not just in the run-up to a significant tax bill, that can help you stay in control and on top of money management, particularly in the current climate. These include:
- Always understanding your current financial position
- Estimating weekly or monthly profits, so you can set aside a regular amount each month for your tax and National Insurance bills
- Budgeting for regular outgoings, such as salaries and insurance and, if your income varies, ensuring you have enough to cover your lowest monthly income
- If possible, building up an emergency pot (ideally three months of essential outgoings) to cover you in case of a cash flow problem.
Understand the impact of COVID on your bottom line
The Government’s support packages have provided much-needed financial assistance to the self-employed and small business owners. But it’s essential to fully understand the tax implications and eventual cost of Government grants and any other new state help received in the 20/21 tax year, such as universal credit and jobs seekers allowance.
The Self-Employment Income Support Scheme (SEISS), for example, is taxable. While it doesn’t need to be repaid, it is subject to Income Tax and Self-Employed National Insurance.
Mike Parkes is Technical Director at GoSimpleTax – the online tax return and self-assessment software.