People filling in self-assessment tax returns who accessed government Covid grants here’s a warning. You could receive a hefty tax bill!
Those taking advantage of grants including SEISS (self-employed income support scheme), the Small Business Grant Fund or Eat Out to Help out maybe hit with big bills.
Our team’s discovery came when one of our clients’ initial calculations came out at a whopping £4,000! Using our expertise we managed to reduce this by 50%.
Guidon Group Partner Kathryn explains: “Anyone receiving grants may have made more money in the 2020/2021 tax year than they normally would. In addition to this, many people’s premises may have been closed or they may not have been travelling as much.
“As a result, expenses maybe lower they are normally, so your income may also have increased that way. This all adds up to higher profits and larger tax bills as a result!”
How will my tax bill be higher?
The tax calculation for your self assessment is based on the profits you made. If your profit is over £12,500, you will have to pay tax at 20%, plus National Insurance. If you have another job, this is also taken into account.
If your tax bill is more than £1,000, HMRC will want you to pay towards next year’s tax bill, otherwise known as a payment on account, as they assume that your tax bill next year will be similar to this year.
The first payment is due on 31 January 2022 and the second payment is due on 31st July 2022.
So at the end of January, you’ll not only have your current tax bill to pay but you’ll have to pay off a portion of next year’s.
The problem is that next year’s profit figure might be lower as your trading returns to normal levels.
We save client £2K
One of our clients knew she would have to pay more tax this year because of the grants. But she wasn’t expecting the initial tax calculation to come out at £4,000. Using our expertise we managed to reduce this figure to £2,000.
That’s why we’re warning business owners who file self-assessment – whether clients or not – that you may have a much larger tax bill to pay than you’d normally expect.
What should I do?
The biggest issue for many who received grants is they might not have the money pay their tax bill. Anyone yet to file self-assessment will not yet know how much they will ultimately owe.
Our advice is to put some money aside now and file your self-assessment soon. This will give you more time to save towards your final bill in January 2022.
How can you reduce your tax bill?
This is where you need the expertise of a bookkeeper or accountant! They can help you reduce your tax bill legally for this year and next.
If you want our help please book a discovery call with Kathryn.
Or you can download our free guide