There is light at the end of the COVID tunnel

The presented problem:

A client called as the tax year ended 5 April 2021, and as our conversation developed it became obvious that her self-employed business had suffered major losses for her year ended 31 March 2021. She also faced a large tax and Class 4 NIC payment on account due 31 July 2021.

During our discussion we accessed the client’s Xero accounting system, and sure enough, based on transactions posted to the end of March 2021, there was an evident loss for the year and cash reserves – healthy on 31 March 2020 – were now pretty much exhausted.

We confirmed with the client that all transactions for the year were posted which meant we could quickly prepare final accounts for the year and consider options to reduce tax payments during the remainder of 2021.

The outcome:

As our client’s only source of income for 2020-21 was her self-employment, we were able to prepare accounts and her 2020-21 tax return in a short time frame. As a direct result of submitting this tax return:

1.     We were able to carry back losses and obtain a significant tax rebate for taxes paid in a previous tax year, and

2.     We were able to cancel the large tax and NIC payment due 31 July 2021 and recover all the payment on account made 31 January 2021.

Our client was delighted with the result and now has a cash buffer to ride out what (hopefully) remains of COVID disruption to her business. Fortunately, because she had already adopted a cloud-based accounting system, we were able to act swiftly to create the necessary returns, elections and loss relief claims.