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As a business owner, you should keep detailed records of all transactions. These include:
There are also a number of legal documents that you need to keep, such as employment contracts, contracts with suppliers or trading partners; a lawyer can advise you on this.
Nowadays HMRC will accept electronic copies of most documents, so these can be saved electronically using Xero Files, HubDoc, Receipt Bank or Google Drive. In most cases, you’re required to keep these records for 5 years from the date you lodge the relevant tax return.
For more detailed guidelines on record keeping, visit HMRC’s website.
If your business’s turnover exceeds £90,000 per year, or you expect it to exceed this threshold in the next year, then you will need to register for VAT. You can also choose to be VAT registered voluntarily, even though you earn under £90,000; you may wish to do this for one of the following reasons:
If you want or need to register for VAT, simply follow these steps on HMRC’s website or you can let your Beany accountant handle this.
Your tax obligations will vary according to your business type, the number of employees and the benefits you offer your employees.
A sole trader business structure is taxed as part of their own personal income. This means sole traders are taxed at Individual Income Tax Rates and entitled to a tax-free allowance of £12,570. From 6 April 2022, individual tax rates are below:
Sole traders must also pay two types of National Insurance Contributions, Class 2 and Class 4.
Class 2 contributions are £3.15 a week if profits are £6,725 or more a year, being £163.80 if the sole trader was in business for the full tax year.
Class 4 National Insurance tax rates are below:
At the end of the financial year, sole traders must file a self assessment tax return by 31 January each year, if filing online. If filing a paper return, you only have until 31 October to file your return.
A company’s tax is more complicated, and it is important to have an accountant like Beany to ensure you understand all the types of tax that could apply to your business.
In addition to taxes, you collect and pay, there are expenses you can claim to reduce your taxable income. When you do your tax return, you can claim most business expenses as tax deductions.
Although you don’t need to know the nitty-gritty of accounting jargon, it’s useful to have a basic understanding when it comes to interpreting your financial statements. The three most important financial statements are balance sheet, profit and loss statement (income statement), and cash flow statement.
Cloud accounting software such as Xero can provide some of the information you need. You can delve into the profit and loss statement and look at the key figures including sales (revenue), cost of sales, gross profit, non-cash expenses, operating expenses and net profit.
The cost of sales can increase if you hire an employee, for example. Your profit and loss statement should reflect an increase in sales or a reduction in your own workload.
When starting a business in the UK, many people focus on initial setup and target markets, but it's wise to have a solid exit strategy, whether you're in it for the long haul or open to potential opportunities. You should discuss this with your accountant as they may have some recommendations on what you should look out for. These include appropriate structuring advice, how the owners are remunerated, and the way certain items are shown in the financial statements.
At Beany, we have a starter pack designed to help kick-start your business. For £45 + VAT per month (for 1 year only), you can get:
Contact us today and we will prepare you for growth.
We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world.
We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.
Tori Ma
Performance marketer
Performance marketer at Beany, and into true crime documentaries.
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