How to Set up Your Small Business Accounts

by Nicky Bella Digital Marketing Expert

The number of small businesses in the UK has grown steadily since 2017 and now stands at six million. The recession sparked the rise and encouraged many people to start their own business after finding it difficult to find full-time jobs.

Starting a business can be exciting and is an important and proud milestone for every owner. However, if you are excited about winning new customers, you should not keep an eye on the ball and neglect the basic and essential tasks such as the financial aspects. If you do not properly manage your finances right from the start, problems can arise that seriously affect your profits and tax payments.

Consider the finance as a foundation for your business. If you set them up properly, your earning potential can rise and lead to greater business opportunities. You do not have to write books. However, it is better to have at least some basic accounting and finance skills. This knowledge is useful when talking to accountants and accountants about numbers.

Accounting tasks

You can think of accounting as the arduous part of the business. If you are human, you may be more focused on selling. However, it is also a crucial part to capture your sales and expenses. This will tell you if the company is making money or not.

There are many tasks required, eg. These include creating invoices, reporting expenses, monitoring liabilities, and preparing salaries for employees. Instead of manually performing these tasks, you can select:

Software that does such tasks automatically

Instead, hire an external accountant

This gives you more time to focus on your business.

Five good accounting practices

Use the following methods to keep track of your financial records and reports.

Regular accounting

As mentioned before, many business owners consider bookkeeping a tedious task. Just keep in mind, however, that the consequence of a sloppy bookkeeping could be a fine by HMRC. The longer you put off sorting and organizing the papers, the harder it is to keep them in order.

Schedule an appointment to update books. Take an hour or two daily or weekly to record your earnings and expenses in a timely and accurate manner.

Recording and keeping correct records

Even if you hire an accountant, you still need to keep accurate financial records. Failure to do so will make it harder for the accountant to identify the key information. This may result in being charged a higher bill for their time.

To avoid this, access your financial records and check the following:

Did you categorize the accounts correctly?

Is your system outdated and needs updating?

Are the invoices settled correctly?

If there is a will, there is a Reforbes.

Will all your expenses be recorded correctly?

You may want to invest in a simple but robust accounting system that lets you easily enter data. Avoid changing the numbers you log monthly to ensure the accuracy of your records. This also helps your accountant find out mistakes quickly.

Be consistent

If you have regular transactions such as "monthly rent" in your organization, organize them under the same category title. This will help reduce the time and effort of your accountant reviewing your accounts. Using the same category consistently also makes it easier to import your bank details into your accounts.

Simplify your documents

Even if you use accounting software, it is best not to post entries that are not relevant to your business. For example, if you still plan to pay a supplier, you do not need to enter it in your system. Once you have paid, you can record the transaction as a payment.

Automate your accounting

It is not necessary to record each transaction manually if software can facilitate the task. For example, you can use spending management software to take photos of expenses and automatically upload them to your account. Such a procedure saves you having to keep receipts.

An online accounting system also allows you to automatically view and retrieve your bank details without having to download or upload your bank statements.

Prepare and present financial statements

Annual financial statements are general regulatory requirements. You are also expected to present them in a prescribed and formal format. Often these documents show your various accounts such as assets, liabilities, sales and costs.

The due date for submission depends on whether you are a sole proprietor or a limited liability company.

Specific information for:

Individual entrepreneurs

If you are a sole trader, you have the option to choose your financial year. However, you must calculate your taxable income every year from 6 to 5 April. Your accounts are used to secure your tax returns. Therefore, most sole traders and even partnerships prefer the financial year from April 1 to March 31.

Make sure you complete all relevant accounts before the following January 31. You need them to fill in your self-assessment tax returns.

Limited liability companies

You can also select the fiscal year that suits your business. However, you still need to submit your accounts to Companies House annually.

Tax calculation and payments

Corporation tax

All UK-registered limited liability companies must pay 19 percent of their profits. However, make sure that you do not include any earmarked income in your tax calculation.

What is a secured income? These are often gains from oil exploration or oil rights in the UK. You should fill in the following:

Income tax return

Tax payment to HMRC (within nine months and one day after the billing period)

Income tax

In the UK, our income and earnings are subject to personal income tax. You must calculate your personal income tax for the financial year from April 6 to April 5. You will also need to complete a form, submit it and pay by 31 January at the latest.

Regarding the tax you pay:

You have a tax-exempt personal deduction of £ 11,850 (period 2018/2019)

The first £ 32,000 referred to as "Basic Income" will be taxed at 20% (after deducting your personal allowance). Income received from you will be subject to a higher tax rate of 40 percent.

If your income exceeds £ 150,000, the tax rate rises to 45 percent.

Unfortunately, if your income exceeds £ 100,000 you will lose your personal allowance.

You also have to consider social insurance, which has to be paid at different rates and thresholds. Fortunately, dividend income as a public company often has lower tax rates and no social security payment is required.

VAT

Regardless of your corporate structure, you will need to register for VAT if your annual revenue reaches at least £ 85,000. If the amount is lower then the VAT registration is optional.

To offset VAT, you can charge your customers the VAT rate of 20 percent. Add at least 20 percent to your total bill for your bill. Keep the amount for your next VAT payment.

In addition, you can offset any VAT payment for your business purchases or expenses against your current VAT liabilities. Then pay HMRC the remaining net VAT amount. You should submit quarterly VAT returns and payments.

PAY

In the UK, we have the pay-as-you-earn (PAYE) income tax system. This means that the company deducts the income tax and the employees' social security contributions before paying their salaries. The government will set the tax rate based on the current tax code. The deducted amount goes to the HMRC.

Employees pay at least 12 percent of their salary for social insurance, while employers pay 13.8 percent based on gross salary and thresholds. Remember that your share can not be deducted from the salaries of employees. Consider this as an additional tax expense.

Ways to reduce your tax burden

One of the major benefits of hiring an accountant is his expertise in legally reducing your tax liabilities. Here are some of the actions that your company can take to get a lower tax burden:

Allocate your income to your corresponding expenses

Some companies may receive an upfront payment before starting a job. In such a situation, paid money is often reported as income before the costs of work are incurred. This may result in your spending your taxes in advance.

For example, your business received £ 5,000 in April for work you will deliver in May. To avoid overpaying your taxes, record them as income in May rather than April.

Do not forget about these often ignored issues

Theoretically you deduct all business expenses. However, many companies forget to deduct some costs:

bad debts

Interest payments (if you have business loans)

Rental for the use of the house as a place of business

lease premiums

guarantees

Stock loss provisions (if your stocks have a lower market value than their cost)

Use your income tax deduction

Your tax-free allowances are the original amount that you deduct from your taxable income. Consider using your allowances from:

income tax

savings

dividends

You can receive a total of £ 14,850 tax-free income if you are single, or £ 29,700 if you are married. The trick is to earn enough income to take full advantage of personal allowances. However, as income increases, your allowances may also decrease or dissipate. To learn how to best implement this strategy, you should consult with experts like Northants Accounting.

Corporation tax relief

It is normal for companies to deduct the costs associated with their trade. However, are you aware that your company can reduce its tax burden through R & D tax relief? If you work in software or innovative industries that involve solving key customer issues, you can apply for RND relief. Since this is a complicated tax strategy, you need to consult a tax specialist.

Conversion to a digital control system

As of April 1, 2019, all VAT registered companies must keep digital records. You will also need to send all your VAT returns to HMRC using the Make Tax Digital (MTD) compatible software. If your system is not compatible, there is a risk of surcharges if you fail to file the VAT declaration on time. If you are still not digitized or your system is not compatible with MTD, contact your accountant or accountant.

Tax relief from investments

Investment projects such as EIS or SEIS offer tax benefits such as:

Income Tax Refund - You can claim half of your investment costs against any income tax you have paid at source

Free Capital Gains Tax - If you sell your investment for profit, you do not have to pay the capital gains tax

Free inheritance tax (for investors)

However, there are several specific requirements for this type of investment project. Therefore, it is better to consult an expert before investing in such projects.

Conclusion

As you may appreciate, running a business is about much more than just balancing your accounts and accounting. You should not overlook the importance of keeping your finances under control. Otherwise you could have a bigger job on your hands and constantly try to catch up. You can always hire an accountant or accountant to take care of your accounts. So you can focus on growing your business. However, you should at least familiarize yourself with the basics of financial accounting. Another benefit of hiring an accountant is that his financial expertise helps your company keep tax regulations up to date and ensure your accounts are always accurate and compliant. At the same time, they help you to avoid tax burdens while keeping your tax costs low.

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Created on Sep 5th 2019 10:48. Viewed 454 times.

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