Once upon a time Rupert Grint aka Ron Weasley, star of Harry Potter, turned to tax advisors who suggested he file 20 months of income for the year 2009 – 2010. This would have prevented his money for the following year being affected after the top rate for the tax in the UK rose from 40 percent to 50 percent. The tax increase was abolished two years later.
However, Mr. Grint didn’t change his tax filing date and instead went to court to plead his case and seek a refund for the ten percent loss. The hike resulted in the additional cost of £1 million and probably a few curses.
The death eaters (we mean the tax authorities) agreed that Grint had the right to change his accounting date, but denied he had actually done so.
Rather tellingly, during the hearing the famous red-head admitted his knowledge on financial matters was “quite limited” and he relied on his father and accountant to oversee his accounts.
If only this was a story with a fairy tale ending. Lord Voldemort the Tax Man, is probably wondering why on earth Mr. Grint didn’t take a closer interest in his finances and didn’t have the information he needed to make effective real time decisions.
Additionally, from April, HMRC began a journey which will give everyone real-time insight into their tax affairs and will automate more of their tax filing, eventually making the entire process digital.
By 2020 HMRC is hoping to fully integrate all sizes of business, individuals, landlords and companies into this digital tax regime. This ambitious move is not about adding burden for busy freelancers and business owners –in fact more regularly updating your finances makes for a better business and actually reduces, not increases, the self-assessment headache.
However, for many self-employed people today, their business finances are unsatisfactory, with poor record keeping, a box of receipts handed to an overworked accountant and a nasty unexpected bill to welcome in the New Year. More frequent updating of your finances is a step that will mean greater predictability and more visibility, allowing you to better plan your finances and tax payments.
We all know change can be hard but people are about to be put in control of their accountancy for the first time. As we have just passed the end of the financial year, it would be wise for small businesses to begin 2016/17 by adopting the digital filing mindset early, by moving to online cloud services and looking for an advisor who can keep an eye on your finances so you can keep both eyes on running your business.
DISCLAIMER. No Members of the Ministry of Taxation were hurt in the telling of this story.