Planning, support and proper tech are all key factors.
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Spring brings with it the start of a new tax year. It's a good time for small business owners to organise finances, reflect on past money management practices and start thinking about new tax year resolutions.
Before you start, look back over the last year. How has the pandemic affected your business? What are your current pain points? Are you confident about how you are managing money or do you need some advice? The chances are that your business has changed; how has this made a difference?
You can then look at what's ahead. Ways that you ran your finances in the past might need a bit of a rethink.
Here are four resolutions to make tax easier, and help you become more efficient with money management:
1. Invest in cloud-based software
To prevent financial mistakes, cloud technology can give business owners an accurate and up to date look at data like cash flow. This data can be accessed remotely and from any device, giving you visibility of how much cash you have at your disposal at any given time.
Switching to a good cloud accounting software will help you report and keep on track of key business metrics in real-time. These include inventory, turnover, accounts receivables and operating margins. Having a good handle on these business metrics will help you manage your cash like a pro – and take advantage of new and exciting opportunities.
If you don't want to make a change to your current systems immediately, that's fine. However, we recommend taking that first important step of reaching out to our specialists who can help you with your business requirements.
2. Speak to an accountant
Getting to grips with new tax changes can be overwhelming. If you work with an accountant , now is an opportune time to have a conversation with them. Start by going over action points for your business's financial year-end, the past year's performance, and your business goals for the year ahead.
If you don't currently work with an accountant or bookkeeper, think about how one can support your business in the new financial year. Especially if they're able to use technology to take the stress out of accounting and the financial year-end.
Accountants can help you with all areas of the management of your business finances. They can help with things like tax filing, cash flow forecasting and advise on the best apps to take your business forward.
3. Get ahead of tax changes in 2021
The pandemic has forced businesses and individuals to adapt quickly to constantly changing rules and regulations. There are still many unknowns ahead, but there are some things small businesses can start to think about if they haven't already.
The first one is Making Tax Digital, an initiative from the government which aims to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. These new digital tax rules require businesses to keep digital records and file VAT returns using compatible software. Most businesses over the VAT threshold would have complied by now, but it won't be long before those under the threshold will also need to get ready.
IR35 is a legislation that allows HMRC to collect tax at source where a contractor is an employee in all but name. The legislation has been in place since 2000, but new changes are coming into effect on 6th April 2021.
However, these changes don't have to be overwhelming - digital tools can help you save time processing these changes – for example, Xero's Making Tax Digital (MTD) for VAT solution ensures businesses are fully compliant with the new HMRC rule and by April we will have a solution available within Xero Payroll to process IR35 tax changes.
4. Do a VAT health check
Finally, we recommend that you carry out a VAT health check. As a small business owner, there are many considerations that should be taken into account in relation to VAT.
An accountant could review your VAT and help you figure out if for example if you could benefit from voluntary consideration or if a flat rate scheme could work for you - they'll help you decide what is most applicable to your business.
Once you've got a complete set of accounts for the year, you're in a great position to keep on top of reviewing your business performance. Resolutions are easily broken, but what helps you to keep on top of the curve is when you make them a habit.
All you need to do to be on the front foot is a little bit of planning, and have the right technology and accountant supporting you. Write down your wish list then visit our Advisory Directory here to find an accountant.
Words by Donna Torres is Director of Small Business at Xero.