4 Accounting Tips For Buckinghamshire Businesses
Buckinghamshire is fast becoming a hotbed for new and expanding businesses, with Milton Keynes recently named the second largest platform for startups in the UK. But the continued success of these small businesses can all depend on the way they handle their finances.
For many entrepreneurs, bookkeeping plays second fiddle to the daily running of their company, something which can leave them in hot water later on in the financial year. To save themselves time (and money) small business owners need to make sure they are stepping up their bookkeeping efforts and staying on top of all their accounts.
Start Bookkeeping From The Very Beginning
One of the most common reasons a business fails is because there was no plan in place for bookkeeping. Whilst you might feel that you have a pretty good idea of what’s coming and going from your account, things can quickly go awry if you don’t keep a careful record of all your transactions.
Setting aside just half an hour a week to check over invoices and file receipts can make a huge difference over the course of the year. Leaving all your paperwork until the tax deadline can result in major errors in accounting and, in the event of a tax investigation, even government fines. But, as long as you keep a careful note of all your income and expenses, you shouldn’t have any trouble. Be aware of when your accounting year starts and ends and ensure you are routinely updating your books throughout this period.
Find An Accounting System That Works For You
There is no one way of keeping your books, but finding an accounting system that works for your company and sticking with it should be a top priority. The two main choices when it comes to accounting are the cash accounting method and the accrual accounting method.
For smaller enterprises and sole traders, cash accounting is the simplest way to keep track of your accounts. Using this method, receipts and expenses are recorded during the tax year they are paid off. For example, if you receive payment for a job in the 2015-2016 tax year, you must make sure you include this payment in your tax return. Even if you receive the cheque days before the deadline and are unable to cash it immediately, you still need to record it as part of the 2015-2016 return. Cash accounting forgoes guesswork and means you can always be sure what you’re recording is correct.
However, some businesses opt to estimate the amount they will receive and spend. Known as the accrual method, this form of accounting allows you to record an expense or a sale when it is made, rather than when payment occurs. As long as you can reasonably expect to be paid, then the money doesn’t have to leave or enter your account during the same tax year. Accrual accounting makes it easier to keep tabs on transactions, but can be a slightly more complicated process, meaning you may require the help of an accountant.
Ensure You Are Budgeting For Tax
Taxation is an inevitable part of any profitable business and should be planned for from the very beginning. The kind of tax you pay all depends on your business status and which company structure you’ve chosen to operate under. For sole traders, contributions are limited to National Insurance and Income Tax, but only if you’re generating profits over the threshold amount. Entrepreneurs operating in this way are entitled to a personal allowance of £10,600, before which no tax is paid. Business expenses are also exempt from tax until they total £15,000 or more. For smaller business, this can mean that very little tax will be required during the first year of sales.
On the other hand, if you have chosen to present yourself as a limited company, you will have to begin thinking about the effects of corporation tax. Corporation tax is now set at 20% for all businesses but needs to be paid at an entirely different time to other taxes (including Income and VAT). For this reason, proper budgeting becomes a must and small businesses need to ensure they have enough reserves to cover taxation at each point in the financial year. Keeping aside the taxable percentage of each payment you receive should more than cover you, especially when expenses are deducted at the end.
Separate Personal And Professional Finances
When you’re starting up a new business it can be easy to lose track of which expenses you can claim on and which are from personal transactions. To avoid accounting errors further down the line, entrepreneurs should look to open a separate checking account for business affairs.
Should your company be subjected to an investigation by HMRC, this differentiation can save you precious time. With business expenses entirely separate from personal finances, you won’t have to sift painstakingly through your books in order to determine which is which. The separation also makes it much easier to keep track of exactly what’s coming and going from your business, so you never fall victim to overspending.
Whilst Buckinghamshire may be on the up and up, things can quickly go downhill for your business if you don’t stay in control of your finances. By keeping a close eye on all activity in your account, you can reduce the chances of simple accounting errors and ensure your business is stable from the ground up.
Author Bio: Chris Weston is the director of Milton Keynes based accountancy firm, Aston Black. Chris has over 25 years experience in accounting and taxation, working with his small team of staff to provide quality advice for small businesses up and down the country.
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