Accountancy sits at the heart of any business, and if you put the correct processes in place it can save you time and effort further down the line. Areas to pay particular attention to include:
Being accurate and on time
It is imperative that you submit your accounts, tax returns and Companies House paperwork (if a limited company) on time. If you provide this information late, then you could incur penalties and this is not something that your accountant would be able to prevent, as you are ultimately responsible for any errors or missed deadlines.
Keeping receipts and documents together
This may sound like common sense, but it is vital to keep invoices and receipts filed away in a safe place. Many clients inform us that they have mislaid important documents, and HRMC advises that you should keep such documents for at least six years before throwing them away.
Flat rate or standard tax scheme
VAT can feel like a minefield – but it is important to enquire with your accountant as to whether your business would suit the flat rate tax scheme or standard rate tax scheme.
Under the standard rate tax scheme, you account for all the input and output VAT you receive from customers or pay out to suppliers. Each quarter, you calculate how much VAT you must pay to HMRC (assuming you have received more VAT than you have paid out).
Under the flat rate VAT scheme, you apply a fixed percentage to your turnover each year, and pay this sum to HMRC, rather than calculating the input and output VAT on each transaction you make.
The flat rate percentage varies depending on the business sector or industry you are in. For example, accountants and IT contractors currently pay 14.5%, and a travel agent pays 10.5%.
However, it is important to note that you can only apply to use the flat rate scheme if you have a turnover of £150,000 and under.
Capital allowance – make sure you’re in the know
If you buy an asset, for example, a car, tools, machinery or other equipment that you use for your business, you cannot deduct that purchase for your profits. Instead, you may be able to claim a capital allowance for that expenditure.
The aim is to give tax relief for the reduction in value of qualifying assets that you buy and own for business use by letting you write off their cost against the taxable income of your business.
Capital allowances are available to sole traders, self-employed persons or partnerships, as well as companies and organisations liable for Corporation Tax.
Are you liable for Corporation Tax?
Limited corporations and some organisations are liable for Corporation Tax. All taxable profits or surpluses are subject to Corporation Tax requirements. Examples include limited companies incorporated in the UK, foreign-based companies with a permanent place of business in the UK and members’ clubs, such as social clubs, sports clubs and holiday clubs.
Businesses and organisations that are not subject to Corporation Tax requirements include sole traders, one person businesses that are not operating through a limited company, traditional partnerships and limited liability partnership (LLPs), charities and local authorities.
Your accountant will be able to further advise you on whether you are liable for corporate tax based on your current circumstances. It is important to appoint an accountant you can trust, who will be able to provide you with best practice advice. It is also imperative that your accountant thoroughly understands your business proposition whilst being reasonable and fair on price.
About the author
Sue Redmond is a partner at Lloyd Piggott, an independent accountancy firm based in Manchester city centre. With additional offices in Poynton, it provides full-service accounting services to businesses of all sizes, from one-man-bands to national organisations. It’s established team has expertise in all areas of accounting, including audit, tax planning and business services. For further information visit www.lloydpiggott.co.uk or call 0161 236 7677.
Running your own business can be challenging and even more so when you factor in issues such as accountancy, and more significantly, tax. However, it is important to get these details right, and if you do have a consistent way of handling tax matters it will take the pressure off and enable you to manage tax easily and effectively.