Small Business Bookkeeping Basics
Over time, the money that coming in will increase. As the profits grow, it’s smart to have absolute control and visibility of your business, making sure that it’s set up in a tax-efficient way and you can make sound management decisions based on accurate, timely figures. Whether what are retained earnings you take on your small-business bookkeeping yourself or get help from an expert, understanding the basics will help you better manage your finances. You’ll save time chasing receipts, protect yourself from costly errors, and gain valuable insights into your business’s potential.
HMRC will bring thousands of freelance contractors who are effectively full-time employees within PAYE, in an effort to tackle what the taxman sees is “disguised employment”. Responsibility for assessing the tax status of self-employed contractors will shift from the contractor to the company that hires them in April 2020. Many freelance contractors will need to wind up their personal companies ahead of IR35 being rolled out to the private sector. Employer’s national insurance is also charged at a rate of 13.8 per cent on the gross salary, again within certain thresholds – this is not deducted from their salaries and so it represents a real, additional tax cost to your business. Making Tax Digital (MTD) for VAT is new HMRC legislation that forms part of a wider plan to eventually digitise all tax for UK businesses.
You should carefully consider each type before deciding which one best suits you. For example, you may do business as a sole trader or sole proprietor, working on a self-employed basis and invoicing under your own name. If this is the case, you might be able to offset some of your living expenses against tax. Hiring a professional at this early stage will mean you get the benefit of their financial knowledge and advice right from the start.
But it’s better to hire an accountant before an audit ever happens, especially if you can find one who will offer audit insurance. Audit insurance covers the fees you would have had to pay if your business needed to respond to an official enquiry, review, investigation or audit by a tax department. An accountant who offers audit insurance means they won’t charge any extra for the considerable amount of work they’ll have to carry out during the audit process. Preparing your tax documents correctly could save you money – perhaps more money than your accountant charges you.
Many people now choose to use cloud-based software. Such software can scan your receipts, input information about your cash flow and even generate invoices – you can check out a comparison of some of the popular apps here. Software is also a great way to keep your records backed up. Expect to pay £200 for an accountant to help fill in your tax return, but their knowledge on tax and what you can claim on expenses could go some way in reducing your overall tax liability.
Be very mindful of spending decisions, ensuring that only business accounts are used for business-related costs. The same goes for your personal account. A lot of small business owners use some of their personal funds to keep things running for the first few months.
See our step-by-step guide on how to invite collaborators here. When everything is neatly where it belongs, tax time is simple.
The most traditional method of bookkeeping is to hire an accountant or accounting firm. (We’re talking local mom and pop shops and freelancers.) These guys offer great benefits over the DIY self method—like the fact that you’ll barely have to lift a finger and you’ll also be privy to expert insight (pending they’re qualifications of course). online bookkeeping Choosing the right option for your business can be difficult. There are hundreds of accounting firms and software solutions to choose from, and what works for one business owner might not work for another. But before you can even begin to consider which service provider to choose—you must first decide which method is best for you.
In this post, we’re rounding up the best accounting tips to avoid common mistakes that could have a detrimental impact on your business. Once you’re operating with clean books, you’ll reap the benefits that come with it.
This is the financial statement which presents a summary of your financial activity over a certain period of time. After working out the revenue earned, the costs of goods sold and the expenses, it works out your net profit or loss. Obviously, this is one you need to know or should already know. Bookkeeping is the recording of financial transactions on a day-to-day basis.
Having accurate financial records helps managers and business owners answer important questions. Is the business making money, or losing it?
It can be daunting dealing with government paperwork when you run your own business. This is why so many small business owners hire an accountant when the first tax filing is due. You may also want to measure key business retained earnings metrics, such as the ratio of salaries and other employee payments to total revenue. An accountant can help here by managing your payroll and producing graphs so you can see how the ratio changes over time.
Taylor, Peter. Book-Keeping and Accounting for the Small Business.
Not only does it make your business appear more professional, there’s no need to wade through personal finance statements to find the business-related items and expenses come tax deadline times. It’s also easier to prove to HMRC that any expenses you claim are purely business related – which can be tricky for home or hobby-based businesses. With any start up it’s best to keep business and personal finances separate. This is particularly important for limited companies.
Tracking the financials can be a chore though, and one of the biggest questions you might have bookkeeping is who you get to help with your accounts. Do you need an accountant, a bookkeeper or both?
If you are a small business owner, you either have to set up your own accounting system or you have to hire someone to set it up for you. If you are self-employed and it is a one-person business, you will do it yourself. If you are hiring staff and anticipate a lot of growth, you may hire a controller to handle your financial management and accounting. If your business is going to grow but you anticipate slow growth, you may simply hire an accountant or bookkeeper to handle the accounting system.
You also may be able to prevent or uncover fraud, whether from customers, vendors, or employees. Bookkeeping is essential to the vitality and long-term online accounting success of any small business. How? Primarily, you need to have an accurate picture of all the financial ins and outs of your business.
Make sure that your employees know the importance of saving receipts and itemizing expenses when they’re out so that you’ll have accurate records come tax season. Unfortunately, it is a common mistake for small business owners not to save copies of their expense reports. This can result in a wide range of tax, accounting, and cash flow issues.