What is bookkeeping?

Bookkeeping is the process of keeping accurate up-to-date financial records for your business.

A bookkeeper keeps track of all transactions that pass through your business, by keeping accurate records of all debits (costs) and credits (income) that your business generates on a daily basis.

Whether you keep your own records or hire a professional, you are required by law to keep an accurate and up to date record of all of your business transactions and the records that you keep will also help you prepare your end of year tax returns.

By keeping your financial records (also known as ‘books’) up to date, you will stay aware of your business’s current financial position and be alert to any late payers or cash flow issues that may arise. Your records will also enable you to prepare any financial statements or reports that you may need to present to the managers or shareholders of your company, or to any financial institution if you are looking for investment.

There are many jobs involved with bookkeeping for your business and it can be a time-consuming process. Some of these jobs are:

• Data reconciliation — ensuring that your records match bank statements plus cash transactions

• Recording all company transactions – including purchases, sales, receipts and payments

• Setting aside money for corporation tax

• Producing and issuing invoices

• Monitoring all purchase orders – from creation to completion

• Chasing debtors for late payments

• Recording staff expenses

• Liaising with your accountant to assure tax compliance

• Producing financial statements and reports

• Paying all suppliers and creditors, such as HM Revenue & Customs

 

While it’s totally possible to do your own company bookkeeping it can take up a lot of time. If you are struggling to put aside the time needed to keep your records up to date it may be worth looking into hiring a professional bookkeeper to ensure that your finances are kept up to date and accurate at all times.

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Do I need an accountant?

When you start a new business, it is important to keep your costs as low as possible, which is why you try to complete all the necessary jobs yourself, including managing your accounts. 

When your business is new and relatively small it is possible to look after your accounts by yourself, but as time goes on and your company grows the process of managing your company accounts can become extremely time consuming and complex, making it important to hire a professional.

An accountant will provide you with the expert advice you need to enable your business to grow and flourish while ensuring that your tax obligations are met and that you don’t end up with any large unexpected bills. 

An experienced accountant can help ensure that you:

• Don’t miss out on any tax breaks by failing to claim valid expenses

• Don’t underestimate your tax bill and get into trouble with HMRC

• File your tax return and other compliance paperwork correctly and on time

• Have up to date advice on all aspects of tax law, so that you can use it to help your business progress

• Have help to manage your payroll and make sure that all employees tax codes and wages are recorded correctly

• Are provided with up to date financial reports, enabling you to understand your company's current financial situation at a glance, helping you to plan ahead

• Can organise and record shares or stock allocation, such as when an existing business partner leaves or a new partner starts

• Get assistance if you need to apply for a business loan - your accountant can present reports featuring facts and figures that can back up your application for funding

Hiring an experienced accountant could save your company money. By using their extensive knowledge of tax laws and legislation, an accountant could help you free up your cash flow. They could even save you money and even possibly raise money, enabling you to expand and develop, whilst ensuring that you don’t violate any tax laws and stay on the right side of HMRC.

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Limited v self employed: What do I need to know?

When setting up your own business, there are many decisions that have to be made, such as where will you work from or what will you call your new company. The most important decision you will have to make that will affect how your company operates in the long-term is whether you set-up as a Sole Trader or as a Limited Company.

There are advantages and disadvantages to both, and your decision will depend on many factors such as whether you plan to always operate alone, or will you want to take on staff or a business partner in the long-term? Will you need a large investment as some point and how much personal financial liability are you willing to take on?

The most important distinction to consider when choosing between the two business models is the subject of liability.

Sole Trader

As a sole trader, there is no distinction between your business and personal assets, so if your company was to fall into debt, you would be personally liable for that debt.

Limited Company

Limited companies offer you as company directors the added protection of ‘limited liability’ which means that if anything was to go wrong with your business you would not be held personally responsible for any financial losses or debts owed. 

When reading the above you may think that a Limited Company is the better option, but this depends on what type of business you intend to run. If you are a one-man-band and don’t need to invest in a large amount of equipment or in business premises then your liability will be limited and you might find that the low cost associated with setting up as a Sole Trader outweighs the risk.

There are many other advantages and disadvantages to each business model, so we have put together a more detailed guide to help you make your decision

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What is making tax digital?

‘Making Tax Digital’ is a scheme that has been introduced by HMRC to encourage businesses to switch from recording their accounts either on paper (books) or in spreadsheets to recording all day to day business finances as digital records using one of the accounting software packages available.

This information is then provided directly to HMRC from the compatible accounting software, reducing the problems associated with incorrect information being passed using traditional methods.

HMRC say that switching to this method of recording and reporting will make it easier for individuals and businesses to get their tax right and keep on top of their financial affairs.

The scheme was introduced in April 2019, initially for VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000.

HMRC are planning to roll the programme out to all VAT-registered businesses at some point in 2021.

Signing up to the scheme is not compulsory for self-employed people or sole traders, but it is possible for you to join the scheme voluntarily if you think your business would benefit.

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How do I pay less tax?

We’d all like to pay less tax and increase the amount of disposable income we have available to us each month.

The proportion of our income that we pay in tax is currently at its highest since the late 60s and equates to an average of 35% of our national income.

There are plenty of ways to save on the taxes that you must pay and stay on the right side of the law. Easy fixes include:

• Making sure you are on the right tax code

• Pay into a pension scheme

• Make use of the tax-free savings accounts available

• Use your Personal Savings Allowance

• Make sure your home is under the correct Council Tax band.

There are many different ways you can increase your income by reducing your tax bill. We have put together a guide to help you save on tax and help you keep more of your money