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Accountant’s Guide to Managing Your Business Finances

Financial management can take many years to master. Managing your money is difficult but so vital to grow and develop your business. Nowadays, we are blessed with the ability to hire accountants to help manage our business finances for lower costs than you may think. However, you cannot be purely reliant on accountants alone as you are accountable for managing your finances. Here is your guide to equipping yourself with the essentials to manage your finances…

Understand the basics of finances

All business owners must have the basic skills of managing finances in order to have a successful business. There is terminology which is vital to know like the breakeven point, net profit, cash flow, expenses and gross revenue. These will be terms used on a daily basis so make sure you understand them all.

Furthermore, you must also understand business accounting documents such as revenue forecast, cash flow statement, income statement and balance sheet. If you aren’t familiar with these terms and documents, google them and research what they all mean and do. It will be invaluable knowledge for your business. 

Keep track of your cash flow

Cash flow is the money that goes in and out of your business and is easy to lose track of so ensure you are organised and know where it is at all times. The inflow of your business is from selling your goods whereas your outflow is the money your business spends on stock, payroll as well as marketing too. Try to always keep your outflow lower than your inflow, even though this could prove difficult. Just bear it in mind at all times and never lose track of your business goals.

Ensure your business and personal finances are kept separate

If you are a small business owner, it may seem easy and simple to have all your finances in one account. This is not recommended as it makes your business disorganised and can lead to tax issues as your business grows larger in the future. The first thing you should do when setting up your business is having two separate bank accounts for your personal life and company.

Spread out your tax payments

Paying your tax in a lump sum isn’t always the wisest of moves as large amounts of money leaving your cash flow can seriously affect it. Instead of this, try and opt for tax as a monthly expense. This will help you with budgeting.

Have a business cash reserve

Have a business bank account that can be used as a cash reserve. Top it up as often as you can and make it easy to withdraw money when needed for your business. This will take the pressure off when you have any additional bills to pay for your business.

If you need assistance with your business accounting, contact me today!

Benefits of Making Tax Digital

The Government’s programme to make tax digital is a bold one. HMRC has set its aim to become one of the most advanced digital tax administrations on the globe. But what do we mean by making tax digital and most importantly, what are the benefits of this new scheme? This article will guide you through the pros of making tax digital and why it’s a win-win situation for all parties involved in the programme.

What is making tax digital?

The definition of making tax digital is the programme to which HMRC aim to change from paper-based systems as well as forms for the administration of tax to more digital variants. Making tax digital is already prevalent for VAT in the UK. This was established in April 2019 for businesses that are over the VAT threshold of £85,000. As of March 2020, there were over 1.4 million businesses who have joined the digital VAT service. It will eventually be rolled out for self-employment tax, company tax and income tax too.

Making tax digital also aims to make tax files simpler for businesses as online software will be able to automatically prepare tax returns as well as sending them to HMRC directly.

The Benefits

There are numerous benefits to making tax digital. For example, businesses will become more productive; saving them hours each week of business administration. Additionally, there will be less paperwork and reduced stress filing all the tax returns. Accuracy will be enhanced, and fewer errors will be made when submitting these tax returns. Tax liabilities will be more visible, staff can do other business activities with the time saved, and it will be quick and easy to view all tax data on phones and tablets. Not only this, but it’s a greener method, with zero paper so a reduction in deforestation will occur.

The future of making tax digital

So, what can we expect soon by making tax digital? Well, by 2021, it is predicted that HMRC will enforce digital tax methods for corporation tax as well as income tax. It is expected that this will happen in the first tax year for income tax 2021/2022. However, all this may potentially be delayed because of the COVID-19 pandemic. The pandemic has led to delays in numerous projects across sections and has led to the prioritising of specific financial resources. 

Speak to Herridge Accountants now about making your tax digital. 

An Introduction to VAT

VAT can be a confusing concept to grasp if you have never needed to pay VAT before. Nonetheless, being VAT registered can bring with it lots of advantages concerning your finances. Here is a brief introduction on VAT with some answers to questions you may have on the subject.

VAT is a tax which is added to the majority of services and goods. It is something you must pay if you are a business or merely an individual. You pay it on a range of things from bills to clothes. For companies who make over £85,000 a year, they will need to add VAT to their goods and services’ costs. Businesses must register for VAT if they turn over more than this.

Once registered, a business will need to charge VAT on the goods and services which they sell and offer. Companies will also need to fill in a return every three months. This will include information like how much VAT their business has charged as well as how much their business has paid.

Businesses will have to pay outstanding amounts of VAT if they have charged more than they have paid. In contrast, companies are able to claim back VAT money from HMRC if they have paid too much VAT than they have charged.

VAT rates in the UK are 20%. That is the standard rate. Mobility aids and children’s car seats are 5%, and most food, male razors, children’s clothing and books are 0%. Health, financial insurance and most sports services are exempt from VAT too. Find out more about on different types of VAT.

Sole traders and freelancers must also pay VAT if their turnover annually will exceed the £85,000 threshold. The VAT will be registered in their name unlike businesses, and they must ensure always to keep records of the VAT they are charging customers.

There are a few VAT schemes to consider when applying for VAT, so it is important to do your research to discover which one is right for you. There is standard accounting, which is the common one, the Flat Rate for businesses which turnover less than £150,000 per year, as well as Annual Accounting for a turnover of less than £1.35 million and cash accounting which is the same threshold but for small businesses.

Advantages of VAT are that you can reclaim VAT that is paid on top of things bought for your business, such as phones, laptops and office equipment. You can register for VAT even if you do not earn the £85,000 per year yet. This will mean you won’t have to bother looking out for the threshold when you hit that sum and owe HMRC a large lump sum.

To register for VAT, you will need to go to the gov.uk site. You will need things like a tax reference, bank details of your business and company number/address. After this, you will gain your VAT certificate with details of your VAT.