Accounting, tax and VAT
"I think it's really important that you do [your accounts] yourself and that you do it every week. It'll give you an excellent understanding of your project, and what you need to do make it work." Charles Ejogo, owner of umbrella vending machine company, Umbrolly.
Every entrepreneur has a legal responsibility to ensure their accounts are done properly. Don’t let the prospect of doing your accounts fill you with dread and definitely don’t avoid doing them. Empower yourself by understanding the basics. You’ll find it much easier to deal with them once you’ve got the hang of it. Check out our step-by-step guide to accounting:
- Be organised. Do your accounts regularly because it will save time and energy later on. You can be fined up to £3,000 if you fail to keep proper records.
- Find an accounting system that you are comfortable with and stick to it. There are several software packages that will simplify record keeping.
- Keep everything. Bank statements, receipts, bills, invoices and bank books are all vital for keeping proper accounts. By law you must keep records of all your business income and expenditure for five years.
- Get a cash book. In your cash book keep a summary and analysis of all bank account entries, cash receipts, payments and drawings.
- Get a business banking account. Keep your business account separate from your personal account.
- Inform the Inland Revenue when you start trading. They'll send you a tax return. They provide a ‘Right Way to Start Your Business’ booklet which is very helpful. To view it, click on www.hmrc.gov.uk/startingup.
- Make sure you know your allowances or tax credits - you don't want to pay too much. Telephone 0845 609 5000 for Working Family Tax Credit if you have children. There are also some allowances for buying equipment, called Capital Allowances. Go to www.hmrc.gov.uk for more information.
- Send your tax returns in on time. The tax year runs from April 5th of each year, and accounts are due the following September. If you want to work out your tax yourself, you can submit them by 31st January of the following year.
- Remember to pay tax on account. This is where you pay half of your tax upfront once you've been trading for a year.
- Get informed - check for more details on accounting and tax on www.hmrc.gov.uk/leaflets.
- Don’t avoid doing your accounts. Keeping your own accounts helps give you a rounded view of how trading is going. But if you can’t keep on top of things, get an accountant. Ask around - personal recommendations are best.
Our favourite links
businesslink.gov.uk Business Link provides plenty of answers to your accounting questions on taxes, records and returns.
shell-livewire.org Shell LiveWIRE has useful downloads and resources on to finance and funding, including downloadable templtes for sales ledgers, cash books and profit and loss accounts.
hmrc.gov.uk HM Revenue & Customs (HMRC) explains everything you need to know about taxes and VAT.
Other useful links
bizhelp24.co.ukThe Bizhelp24 website has a section on accounting, including helpful tips on making keeping company accounts simple.
businessadviceday.co.uk The Business Advice Open Day programme is provided by HMRC - attend one of the open days to get expert advice and information to help you run your business successfully.
bytestart.co.uk Check out Bytestart's resources on money and tax for small businesses, including some useful tax-saving tips
freshbusinessthinking.comAn online resouce for entrepreneurs where can source information and advice to help you run your business more effectively and efficiently.
thisismoney.co.uk Thisismoney.co.uk has produced a guide to help you choose a business bank account that's right for you.