Running a small business is highly rewarding, but accounting and tax compliance are time-consuming tasks, so what can you do?
In 2017, a survey carried out by the marketing research company OnePoll with 1,000 working people suggested that the UK is a nation of budding entrepreneurs. The majority of respondents (54%) said that they wish to become their own boss at some point and maintaining a better work-life balance was cited as the most common reason.
While it is true that owning a business is fulfilling, many entrepreneurs also know that the process of running a business can be overwhelming. As a small business owner, you’re in charge of many roles including product development, marketing, sales, customer service, IT and accounts, to name but a few. The reality is no one can do everything, particularly when it comes to accounts, tax and legal compliance. This is why most SMEs choose to work with an accountant the moment they start trading.
Regardless if you have been working with an accountant from day one or you have just started to consider working with one after trying to get by without, there are a few accounting tips which are useful for all small business owners that can help to prevent any nasty surprises or even get into trouble with HMRC.
Five accounting tips for small businesses
1. Keep accurate records
Although seemingly simple in theory, many business owners struggle with this mundane task and end up with a drawer overflowing with old receipts and a folder of invoices which they cannot track. If this scenario sounds familiar to you, it is time to engage a bookkeeper or outsource your bookkeeping task to an accounting firm like us, otherwise, the best way is to exercise some discipline when it comes to recording your incomes and expenses.
Why must you keep accurate records? Because without them you are likely to encounter a few issues including:
- You may not be able to claim legitimate business expenses and thereby lower your tax obligation which we will cover later.
- You may not have a clear view of your cash-flow situation.
- You may be fined by HMRC. Please allow us to illustrate this point by referring to this HMRC page which contains a warning: you can be fined £3,000 by HMRC or disqualified as a company director if you do not keep accounting records.
On the HMRC page, it says that ‘you (the director) must keep any other financial records, information and calculations you need to prepare and file your annual accounts and Company Tax Return’. This includes records of:
- All money spent by the company – receipts, petty cash books, orders and delivery notes.
- All money received by the company – invoices, contracts, sales books and till rolls.
- Any other relevant documents – bank statements and correspondence.
2. Meet your tax deadlines
As a small business owner running a limited liability company, you may be aware of the following tax obligations:
- VAT – if you are VAT-registered, you charge VAT on every invoice and also reclaim VAT charged on business purchases. You then pay the difference between sales VAT and purchases VAT to the government every quarter.
- Corporate tax – paying tax on profits from a limited company. For more information, follow this link to the article “Everything you need to know about corporate tax”.
- Self Assessment – the returns you file as a company director (if you are not taxed under PAYE). When it comes to Self Assessment, the tax deadlines you must know are: 5 Oct (register for Self Assessment), 31 Oct (paper tax returns), 31 Jan (online tax returns), and 31 Jan (pay the taxes you owe). For more information about Self Assessment, check out All you need to know about Self Assessment tax return.
- PAYE – the taxes you pay from your salary. Please note that company directors who are taxed under PAYE and who do not have other sources of income are not required to register for Self Assessment and file a Self Assessment tax return yearly.
The beauty of working with accountants like us is that we can help to manage your company tax obligations, including PAYE if we are managing your payroll. We can also help you with your personal Self Assessment. When it comes to taxes, our aim is to help you become tax efficient legitimately. If you are interested in our tax service, please call 020 8108 0090 or drop us a line.
3. Take advantage of cloud accounting software
In today’s digital world, small business owners should use cloud accounting software to their advantage, as it will allow them to stay on top of their finances with ease.
In April 2019, the introduction of the Government’s Making Tax Digital scheme meant that all VAT-registered businesses operating above the threshold (£85,000) are required to keep digital VAT records and send returns using a compatible software like Xero.
At Tax Agility, we are gold partners and certified Xero advisers. This means we have access to a whole host of benefits including 25% discounts on Xero subscriptions made through us. You can read more about Xero on our page “Xero, a powerful new way of managing your business accounts“.
4. Claim all allowable expenses
Allowable expenses are essential costs that keep your business functioning. They can be wages, rent, business rates, repair and maintenance, to name but a few. These expenses are tax-deductible, meaning you can deduct them from taxable income legitimately when calculating the business’s profits. Essentially what it means is that after factoring in the expenses, you have a lower profit and thereby less tax to pay. However, it is important to remember that you cannot claim for costs that have a dual personal and business purpose. To find a full list of allowable business expenses, visit this HMRC page and select ‘expenses’ from the left menu.
5. Separate your personal and business finances
This is a strange one – you are not legally required to set up a separate bank account when starting a new business, but failing to do so will make your life very challenging. The main reason is because HMRC requires you to keep accurate company records as we have explained above. Apart from that, having a separate business bank account allows your company to:
- Gain a credit score and apply for loans when the business needs it.
- Have a business credit card to pay for legitimate expenses (meaning you do not have to use your personal credit card and make a claim later).
- Look professional.
Let Tax Agility manage your accounting needs
Bookkeeping and accounting, VAT, corporate tax, Self Assessment, payroll and PAYE, these are all tasks that will consume a significant portion of your time. To help you manage your accounting needs, our dedicated small business accountants can take on the responsibilities for you, so that you can focus and put all your energy into growing and developing your business.
To find out how we can assist you, contact us today on 020 8108 0090 or get in touch with us via our Contact Page to arrange a complimentary, no obligation meeting.
This article was first published in 2015 and has been updated on 07/08/19.
If you found this helpful, take a look at:
- Small Business: managing rising costs
- Annual Investment Allowance explained: Tax relief for small businesses
- 7 key steps to growing a business online
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.