Making money and spending it may be pretty easy but if you have trouble keeping track and managing your accounts, this could impact on the future of your business. Effective accounting is important to any successful company.
The good news is, once you have this vital bit of administration under control, you’ll find you understand your business much better and can plan effectively for the future. You’ll also feel less stressed out about not having enough control over your finances.
Neither will you worry about what’s going into your next tax return or how you’re going to pay for it.
Here at VW Taxation in Hampshire, we’re used to dealing with business accounts of all types. Here are our the key things you need to know about in order to keep good books:
1. You Need to Keep the Books Up to Date
Bookkeeping is the art of noting down all financial transactions relating to your business. That’s everything that comes into your business such as payments from clients as well as everything that goes out such as expenses and running costs.
Some people choose to keep track of transactions in a piecemeal way which can make it difficult to keep track of anything. They collect paper receipts and put them in the office draw, have no set method of noting down invoices or use several different places to note down transactions.
Our key tip is to up your game in this important administration area and move to digital account keeping. Why? Because it’s easy to do and provides a clear record of what you are doing in relation to your business.
2. Doing Annual Accounts
The date of your tax submission will depend on whether you are acting as a sole trader or a limited company but they both amount to the same thing. You need to file your accounts and then pay the tax on it.
- For sole traders, the tax year generally runs from 6th April to 5th April and the tax due date is 31st You are liable for income tax and perhaps VAT and need to complete a self-assessment form on the HMRC site.
- Limited companies can select their own tax year though most follow the same April to April model. They pay corporation tax which currently stands at 19%.
Need help with VAT? Check out our accounting guide to VAT.
3. Income Tax Rates
The personal allowance increased again this year so you don’t need to pay any tax on any earnings under £12,500. Above that, the basic rate of tax of 20% is applied up to earnings of £50,000. The higher rate of tax then kicks in with a tax of 40% up to £150,000 and 45% above that.
In addition to this, you will need to pay National Insurance. If you are self-employed this starts on profits over £6,365 a year where you pay £3 a week. If your profits are between £8,632 and £50,000 you pay 9%, above that it’s 2%.
VAT is charged at a standard rate of 20% over a threshold of £85,000. You can opt to register for VAT if your turnover is below that but you definitely need to register if you are over this amount. Keeping accurate books is vital if you are charging VAT and these must be presented digitally on a quarterly basis.
If your business is an employer you will need to calculate employee tax and national insurance, deduct this and send it to HMRC. This is PAYE or Pay As You Earn and is generally done on a monthly basis. National Insurance is different from the self-employed and is charged at 12% above the threshold.
There is an additional tax burden in the form of Employer’s National Insurance here which is charged at 13.8%.
Benefits of Using an Accountant
Many small businesses and sole traders do their own tax returns and keep their own books. Using the services of a professional accountant might seem like an additional expense but it can deliver some real benefits.
The biggest is that it can save you time and potentially reduce your tax liability. Small business owners often don’t understand what tax deductions they can take advantage of, including things like allowable expenses.
A good accountant can work with you to help grow your business and make strong financial decisions in the future or prepare for growth. If you are looking to move to limited company status, for example, they can help you with the paperwork and ensure that your accounts are presented correctly and on time.
If you have a business in the Portsmouth or Hampshire area and are searching for a specialist SMB accountant, contact the team at VW Taxation today.