How to manage your accounts in a small business?
It is vital to have your accounts in order if you want to manage your small business successfully. Depending on whether you choose to manage your business accounts or outsource the job will have an impact on your business success. However, bookkeeping, annual accounts and ensuring that you understand taxation responsibilities are essential in maintaining control of your company’s finances.
What are your accounts?
Your accounts relate to the financials of your business and cover several different elements, including bookkeeping, taxes and annual accounts. The following is a brief look at some of the essential aspects of accounting that you should be aware of when running a small business.
Many people get confused between bookkeeping and accounting however, there is a difference. You may choose to outsource your bookkeeping, or you may decide to do it yourself. If you are managing bookkeeping yourself, then it can be handled manually or by using cloud accounting software. The tasks involved include recording expenses, dealing with invoices, paying employees and monitoring outgoings.
Soldo’s solutions can help you to simplify the expense management elements of bookkeeping, including recording expenses, monitoring outgoings and dealing with expense receipts. Soldo’s comprehensive spending management solution enables you to:
- Oversee transactions in real-time
- Define employee budgets
- Change raw data into actionable information
The benefits of this are:
- Bookkeeping is simplified
- Less of your time spent on accounting
- Financial management benefits thanks to improved visibility
- You get more control of company spending
The annual financial performance of a company must be presented as a formal record. There are now numerous finance automation tools available which can help you do this.
When, and in what format, you submit your accounts will depend on whether you have a limited liability entity, a partnership or you are classed as a sole trader. The annual turnover of the business will also impact how you submit your accounts.
The majority of businesses tend to opt for an accounting period running between April 1 and March 31 as tax is calculated for the period from April 6 to April 5. Relevant accounts need to be finalised before the end of the following January so that the information can be used to complete your self-assessment, which is due at that point.
Incorporated entities, including partnerships, limited liability partnerships (LLPs) and limited companies are required to file annual accounts with Companies House.
UK limited companies must pay corporation tax, which applies to all profits that are generated and are not ring-fenced. Corporation tax can be a complex area, and it is usually wise to invest in some professional advice.
Self-assessment income tax
You must fill out a self-assessment return to determine how much personal income tax you are liable to pay on your income. Money owed – and the return itself – are due by January 31 after the preceding April 5 tax year.
Income tax rates
Everyone receives a tax-free personal allowance which was £11,850 in the 2018/19 tax year. Subject to other factors, there is also the provision for around the next £32,000 to be taxable at a ‘basic rate’ of 20 per cent. Income above this will fall into a ‘higher rate’ category. For 2018/19 this was 40 per cent, rising to 45 per cent when applied to earnings over £150,000. If you earn more than £100,000, you will also begin to lose your personal allowance.
National insurance is payable out of employment income and paid according to various thresholds and rates. If you have a limited company, dividend income is taxed at reduced rates, and you will not have to pay national insurance out of it.
Regardless of your business structure, you must register for VAT if the annual turnover reaches £85,000 or above. If your turnover is below this, you can decide whether to register for VAT or not.
It will be your responsibility to charge your customers or clients a standard 20 per cent rate of VAT. Charging VAT means that you should add these amounts to sales invoice values. This money should then be set aside to pay HMRC, minus any VAT you can reclaim against business expenses and purchases from VAT-registered suppliers. VAT payments and returns are due every three months.
Once again, VAT can be a complex area, and some products and services may be VAT exempt. It may be wise to seek advice from an accounting professional if you are in any doubt.
National Insurance (NI) and income tax must be calculated and then deducted from staff members’ gross salaries. These deductions must then be paid to HMRC. For the 2018/19 year, National Insurance was paid at a rate of 12 per cent, although both this and income tax is only paid if an employee earns above a certain threshold.
There is also the employer’s national insurance to consider. In 2019 this was 13.8 per cent of gross salaries, again with certain thresholds in place. While employee contributions and taxes are deducted from the employee’s gross pay, you must subtract the employer’s contributions from your business funds.
How should you manage your small business accounts effectively?
You probably have some idea as to whether you can manage your bookkeeping or accounting in-house or whether you need to outsource some or all of the tasks. There are some benefits to outsourcing, including:
- Avoiding needlessly accruing liabilities or the risk of penalties
- Increased financial visibility and control
- Ensuring that your business is set up in the most financially- and tax-efficient way possible.
For further information, check out our guides with top tips on managing small business finances. Find out how Soldo can help with your company’s accounting and expense management here.