Tax Advice

8 Lessons Learned: Next U.K. Tax Year Set Up Your Business for Success

Another year, another tax return filed! And while no one likes to think of next year’s tax filing (especially when it’s a whole year away!), planning ahead is crucial to minimize stress and maximize tax efficiency.

If you tend to avoid dealing with taxes until a few weeks (or days!) leading up to your U.K. tax filing deadline, you’ll find yourself scrambling to gather receipts and records. Even if you use an accountant, there’s still work to be done on your end. That said, you should treat your taxes like any other business practice: An ongoing process that needs your attention throughout the whole U.K. tax year.

No matter how your previous tax year went, you’ll find 8 tips below to make your next one run as smoothly as possible, from start to finish.

8 Tips for a Stress-Free U.K. Tax Year

Most business owners make the same mistakes year after year when it comes to preparing to file their taxes. Luckily, many of those mistakes can be avoided by planning ahead and using cloud accounting tools like FreshBooks. Here’s how:

1. Go Digital With Record Keeping

HMRC’s Making Tax Digital (MTD) plan means that eventually (by April 2026 for some businesses and April 2027 for most others), nearly every business type will be instructed to keep digital tax records. Their aim is to make the whole system more effective, efficient, and “easier for taxpayers to get their tax right”. In the end, the paper tax return will become completely obsolete.

For example, if you’re paying VAT, you must sign up for MTD for VAT, keep the required digital records, and file your VAT returns online. And your starting point is finding compatible software. HMRC won’t provide software for you to use, and they don’t recommend any particular systems. But they do have a list of software that’s compatible with their requirements, including FreshBooks.

HMRC’s aim is for all taxpayers to be within this online system, with digital tax records and only online tax return filing. Rest assured, you’ll need a reliable digital record-keeping system in the near future if you don’t already.

2. Turn Expense Tracking Into a Daily Habit

Claiming work expenses, tax relief, and allowances are the upside to the tax system. Automating your expense tracking through a tool like FreshBooks helps make this task so much less time-consuming. Photograph those receipts, set up expense categories, and all that information is at your fingertips when you file your next tax return.

3. Set up a Separate Business Bank Account

It’s always a good idea to have a separate business bank account, even as a sole trader—although it’s not an official tax requirement. This keeps business and personal finances clearly separated. And if you link your business bank account to your FreshBooks account, you can automatically import cash transactions, which really speeds up bank reconciliation. All that’s left to do is approve and sort transactions, which are all ready to be pulled through to the necessary reports.

4. Automated Accounting Processes

How long do you spend on admin during the U.K. tax year? If you’d prefer to reinvest that time back into higher-value activities for your business, there’s a better way. Enter automation. Start by identifying what time-consuming processes you’d like to automate, like invoicing, processing transactions, entering data twice in other business apps, tracking time, filing receipts, organising expenses, or calculating mileage.

Luckily, you can automate all of these tasks and more in your FreshBooks account. It’s a win-win situation for all: You get time back to focus on other aspects of your business, and HMRC gets all the evidence it needs in one place.

5. Make Security a Priority

Although we can all hope we don’t run into worst-case scenarios—fires, floods, leaving your laptop on the train, theft, lost data, server faults, or disabled systems—it’s always better to be prepared just in case. When you choose to use a cloud accounting tool, all your financial data is saved, stored, and backed up automatically in the cloud. Constantly updated security is also part of the package.

Recovery from any of these disasters is also much quicker when your digital safety is taken care of by FreshBooks. Your financial information, and that of your clients, is protected from all of these eventualities. The best part: No phone calls to HMRC to explain why you can’t submit your tax return on time.

6. Give Your Accountant Access

HMRC has created pretty intuitive and user-friendly systems to encourage people to do their own taxes. And that’s great until you need some specific knowledge of tax regulations.

For example: Did you know that you can reclaim overpaid tax for the last 4 tax years? This means that the deadline for claiming tax overpaid for the 2019–20 tax year is the end of this tax year. Now, how do you make the tax rebate claim?

Just give your accountant permission to access your FreshBooks account, and they can do the legwork. Plus, they can check your capital gains figures, add any expenses you’ve missed, and send your online returns too. Once you send your accountant an invite for access, you can sit back and let them take care of all the difficult numbers. Just without the embarrassing carrier bag of receipts!

7. Get Deadlines in Your Diary

HMRC issues financial penalties for all missed filing and payment deadlines. They usually follow a cumulative structure, where the longer you wait to resolve the situation, the more penalties you accumulate.

Organising your UK tax year before it starts gives you the best chance of avoiding any unnecessary costs. No one wants to waste their hard-earned cash on late filing penalties. By working backward from the deadline date, you can plan accordingly. With prior tasks marked in your diary and a great automated system in place, there’s no last-minute panic.

8. Pay the Correct Tax Bill

HMRC and you have the same aim regarding your tax bill—that you pay the right amount of tax owed at the right time in a given U.K. tax year. If you pay too little tax, you’re going to owe HMRC. And if you pay too much, you’ll need to claim a tax rebate. Both these scenarios mean additional paperwork for you and HMRC. Nobody’s a winner here.

Luckily, you can pull financial reports in a couple of clicks in FreshBooks, with some of your most important numbers displayed prominently on the dashboard every time you log in. You’ll always have a firm grasp on your financial position, making it easy to estimate how much tax you owe. No more scrambling in Excel spreadsheets the day before your tax return deadline.

Bonus Tip: Determine Your Business Structure and Tax Liability

Whether or not you follow the tips above, one thing’s for certain: You need clarity over which tax returns to file, so you can put those crucial filing and deadline payments into your diary well in advance. And that depends on your business structure.

Different business structures have different tax year requirements with different tax deadlines. Start by identifying what kind of U.K. business you have before you plan your tax year. Here are the 3 basic U.K. business structures, with their applicable taxes and filing deadlines:

1. Sole Trader

Most business owners start as a self-employed sole trader, owned and run by an individual. You pay income tax on whatever you make over the personal allowance amount, which is currently £12,570. The rate of income tax you pay is dependent on how much you earn, the same as employed people. You can find the current rates of income tax for taxpayers in England and Northern Ireland here. The devolved governments of Scotland and Wales set their own rates of income tax.

You pay this tax using the Self Assessment system, filing an online Self Assessment tax return for the previous tax year by midnight on 31 January of the following year. For example, for the 2022–23 tax year, the Self Assessment filing date is 31 January 2024. Paper Self Assessment returns can still be filed, but the deadline is earlier (31 October), and they are only allowed with prior permission from HMRC if you have exceptional services.

You pay your Self Assessment tax bill in 2 separate payments that are based on your previous tax year’s income. The first payment deadline is 31 January, while the second payment on account deadline is 31 July. After you’ve submitted your Self Assessment tax return, you will then also need to pay any difference between your payment on account and the actual tax calculation for that year shown on your tax return. The payment deadline for this balancing payment is 31 January, following the end of the tax year.

You may also have to pay Class 2 and Class 4 National Insurance Contributions at the same time if your profits are over a certain threshold. You also do this on your Self Assessment tax returns.

2. Partnerships and Limited Liability Partnerships

Both of these business structures have similar tax requirements. Every partner is considered to be self-employed and must file a Self Assessment tax return, just like a sole trader. It’s important to clarify who is responsible for filing your business partnership’s tax return and making tax payments.

3. Limited Company

If you incorporate your business to become a private limited company, you need to file a Company Tax Return and pay Corporation Tax on your profits. The business is now a legal entity and has its own tax requirements to fill. The filing deadline is 12 months after the end of your accounting period. You must pay your Corporation Tax bill by 9 months and 1 day after your accounting period ends.

As an individual within the company, you need to figure out how your role is taxed. This could be as an employee, director, and guarantor of your own company. If you take a salary, you need to pay income tax as an employee. And you’re entitled to pay yourself dividends on your profits, which are also taxed. There’s a dividend allowance of £1,000, then you pay your income tax rate on the rest. You pay dividend tax through the Self Assessment system, which follows the same due dates above.

Choosing which structure is right for your business can be quite tricky, and it’s wise to get professional accountancy help from the start.

Ready to Be All Organised?

Tackle your new tax year with confidence by planning for all your business’s key dates and working in FreshBooks to streamline your processes. You’ll never miss a filing deadline again and be able to stay calm and carry on with your business while being fully prepared for your next U.K. tax year.

This post was updated in November 2023.