If you want to take control and feel confident about your accounting skills, we’ve got some tips to do your own accounting to give you a sense of empowerment and peace of mind.
UK Business Accounting and Tax: Tips to do your Own Accounting.
Many small business owners struggle with managing their accounting and tax obligations, and it’s no wonder why. It can feel like a challenging task with so many rules and regulations to follow.
To properly pull it off, it’s important to approach accounting with the right mindset and tools. You don’t need to be a professional to manage your accounting, but you do need to have some basic knowledge of accounting principles and tax laws.
In this blog, we’ll share some tips for doing your accounting and taxes. Keep reading to learn more!
How to do your own accounting?
Usually, businesses leave matters about accounting in the hands of a professional accountant, especially those large in scale. However, if you have a small business with a limited number of transactions, you can do your own accounting.
Here are some tips to do just that:
Tips to do your Own Accounting: Keep Accurate Records
This means keeping track of all your business transactions, including sales, expenses, and payments. A spreadsheet or accounting software can help you organise your records and track your finances.
Tips to do your Own Accounting: Separate Business and Personal Finances
You can do this by having a different bank account exclusively for business transactions. This aims to ease tracking of your business finances and avoid confusion come tax time.
Tips to do your Own Accounting: Understand Your Tax Obligations
As a business owner, you need to know which taxes you must pay and when they are due.
For more details on your tax obligations, check out HM Revenue & Customs (HMRC) website, but we will also touch on a few topics about UK taxes later in this blog.
Tips to do your Own Accounting: Use Accounting Software
Accounting software is an efficient tool for managing the transactions of your business and can be a real lifesaver from manual and time-consuming recording and computations.
It can help automate certain tasks, such as invoicing and expense tracking, and it can also generate reports to help you assess how your business is doing, finances-wise.
Tips to do your Own Accounting: Review Your Finances Regularly
Do this by checking your bank statements, reconciling your accounts, and reviewing your financial reports. Doing this at least once a month is a good idea to stay on top of your finances.
Tips to do your Own Accounting: Tax Types and Deadlines
The UK tax system is complex, and tax requirements vary depending on your business type. Here are some of the most common tax types that you should be aware of and their deadlines:
Monthly Tax Returns
Value Added Tax (VAT)
You’ll need to register for VAT if your business’s annual turnover exceeds the VAT registration threshold of £85,000. VAT returns are usually filed and paid quarterly, with deadlines one month and seven days after the end of the quarter.
For example, the deadline for the quarter ending 31st of March is the 7th of May. However, your deadlines may differ if you use the Annual Accounting Scheme or the Flat Rate Scheme.
National Insurance Contributions (NICs)
National Insurance Contributions are payments made by self-employed individuals and partners in a partnership. Class 2 NICs are usually paid monthly or six-monthly, and the deadlines will depend on your payment method.
Class 4 NICs are paid alongside your income tax, so the deadline is the 31st of January, following the tax year-end.
Business rates are paid by businesses that occupy non-domestic properties. The amount you pay depends on the rateable value of your property, and you may be qualified for small business rate relief if your property for rating has a value of less than £15,000.
Business rates are usually paid in 10 monthly instalments from April to January, and the exact deadlines will depend on your local council.
Annual Tax Returns
Corporation tax is paid on your company’s profits. If your business is a limited company, you must pay corporation tax on your profits.
The current rate is 19%, but it’s subject to change. Corporation tax returns are due within 12 months of the end of your accounting period, and payment is due within nine months and one day of the end of your accounting period.
For example, if your accounting period ends on the 31st of December, your corporation tax return is due by the 31st of December the following year, and payment is due by the 1st of October the following year.
Income tax is paid on your earnings, including your business profits. Sole traders or partners in a partnership are usually subject to income tax.
Self-assessment tax returns and the tax liability are both due by the 31st of January following the tax year-end. You may also need to pay on account by the 31st of January and 31st of July if your tax bill for the previous year was more than £1,000.
Doing your own accounting may seem daunting at first, but it can save you time and money in the long run. By following our tips to do your own accounting and staying up to date on the latest regulations, you can manage your business finances with confidence.
But if you are still unsure and need further professional accounting and tax advice, you can seek help from an accountant with enough expertise and experience.
Frequently Asked Questions
What accounting software should I use?
There are available accounting software options in the market, and the best one for you will depend on your specific business needs and preferences.
Popular options include QuickBooks, Xero, and FreshBooks. Consider features such as invoicing, expense tracking, and bank integration when selecting software.
How often should I reconcile my accounts?
Regularly reconciling your accounts is a good idea, ideally every month. This involves comparing your accounting records to your bank statements to ensure they match up.
This can help you catch any errors or discrepancies early on and keep your financial records accurate.
What will happen if I don’t file or pay taxes on time?
Not filing or paying taxes on time can result in penalties and interest charges, quickly adding up and becoming expensive. If you fail to comply with tax regulations, this can result in legal action or even criminal charges in severe cases.