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Millions of small businesses could pay less tax legally.

As of 15^th November less than 25% of the UK’s 9 million tax returns had been received by HMRC. That means that nearly 7 million of us were still contemplating our next step.

Those people who need to complete a tax return and pay their taxes by 31^st Jan 2010 include 4 million sole traders, 800,000 landlords, the balance being directors of limited companies and high earning employees.

The Credit Crunch affects the taxman as well.

HMRC know that many of us are struggling to pay our taxes and many (almost a million last year) will do absolutely nothing by the deadline and expect to pay the resulting £100 fine.

Should we pity our poor tax collector, HMRC? Absolutely not! In April 2009 HMRC announced a cunning new strategy which in effect amount to new taxes by the way of fines, penalties and surcharges.

HMRC love collecting fines and penalties and surcharges because ironically very few taxpayers dispute them and they are easier to collect than outstanding tax !

Thousands of taxpayers every year pay the late filing fine when in fact HMRC have no legal right to collect it (e.g. if you have no tax to pay, the fine should not exceed the tax due therefore no fine is due).

HMRC has voted itself punitive new powers = more taxes

HMRC’s new powers mean that they can now fine you £3,000 for not keeping “good” business records. They can further penalise you 30%, 70% and 100% respectively for carelessness, deliberate understatement, and acts of concealment, resulting in underpayment of tax –and further pain you by launching a re-assessment of previous years tax returns.

Instead of the old fashioned investigation culture (which was not cost effective) the taxman has moved to a sleeker tax collection model relying on computer generated stats reporting tax return anomalies to generate enquiries.

This is a much more aggressive “stand and deliver” approach to collecting taxes. Tax compliance is the key and inevitably it is designed to hit the struggling small business more than an affluent one.

“My accountant handles all that” is no longer a defence if the taxman comes a calling. Indeed any self respecting accountant should be warning you of any inadequacies in your records whereas previously they would simply process whatever was put in front of them. As the HMRC powers are retrospective and cover the 2008-2009 tax year the three brass monkeys approach means many are vulnerable to a HMRC challenge this year.

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We just love paying far too much tax, evidently.

The flip side of this is that a reported £7.6 billion is overpaid in tax every year. Small businesses, especially sole traders are victims as they rarely claim all their valid expenses and routinely get over-taxed.

Sole traders are guilty of not claiming for all their tools including computers (and associated broadband costs). In many cases, items are bought ahead of the business starting and traders have failed to grasp the treatment of business assets and corresponding capital allowances, meanwhile their accountant is completely oblivious. Many more would be better off by claiming business mileage rather than motoring expenses, one of the few devices whereby you can actually claim relief on more than you have spent. Even more fail to claim out of pocket but entirely reasonable expenses, bank ,credit card charges and interest. Book-keeping fees that can be tax free payments to a family member are also allowable.

Cumulative tax savings resulting from proper tax advice to the self employed, partnerships and buy to let landlords average out about £800 per year. For every £100 of tax relief not claimed, the taxpayer gets to retain a maximum of £72, at a basic tax rate of 20% and NI at 8%.

Taking charge of your own tax affairs is the best, not the last ditch option.

Deferring the production of annual accounts and tax returns to a third party book-keeper or accountant is damaging the financial well being of millions of tax payers.

Those who have not yet done their tax returns, possibly because they cannot afford an accountant, should seriously consider doing their own. Not doing their tax return by the deadline should not be considered to be an option.

MrTax CD is an extremely easy to use, intuitive system that produces sole trader, and landlord’s accounts. Unlike any other system available, it provides trade-relevant tax saving advice on every conceivable item of income or expense. By simply entering date, description and amount for every element a set of accounts is produced and the tax and NI is calculated. Comprehensive help is then provided to submit the tax return via the free HMRC self assessment service.

If you cannot lose and have everything to gain, why not try ?

Not only do customers save on accountancy fees, MrTax CD provides a money back guarantee that further tax savings will be available by simply following the easily understood advice.

The MrTax CD system was conceived by a former Senior Inspector of Taxes based on the exact processes used by HMRC collectors themselves. Therefore, by definition, any user of MrTax CD is taking reasonable steps to ensure that he is paying the right amount of tax (and not a penny more).

MrTax CD is available as a free download for customers to try the system prior to purchase at Mr Tax CD

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