Accounting

During October’s Facebook Live, I talked about the responsibilities that sole traders in the UK have regarding their accounts.

Starting a business as a sole trader in the United Kingdom can be an exciting endeavour. Whether you’re offering your expertise as a consultant, running an online store, or providing any other goods or services, understanding your accounting responsibilities is crucial for the success of your business. In this blog post, we’ll explore the essential accounting responsibilities that sole traders must adhere to in the UK.

1. Registering as a Sole Trader

Before diving into your accounting responsibilities, you’ll need to register as a sole trader with HM Revenue and Customs (HMRC). This is a legal requirement, and you must do this as soon as you start trading. You can register online through the HMRC website, and you’ll receive a Unique Taxpayer Reference (UTR) and may be required to register for the Self-Assessment tax system.

2. Keeping Accurate Records

Maintaining accurate financial records is a fundamental responsibility for any sole trader. This involves tracking all income, expenses, and business transactions. You should keep records of:

   – Sales and income: Maintain a record of all sales, invoices, and receipts. This includes both cash and digital payments.

   – Expenses: Keep receipts for all business-related expenses, such as office supplies, equipment, travel costs, and any other expenditures directly related to your business.

   – Bank statements: Regularly reconcile your bank statements with your business records to ensure accuracy.

3. Setting Aside Funds for Taxes

As a sole trader, you are personally responsible for paying your taxes, including income tax and National Insurance contributions. To avoid any surprises, it’s essential to set aside a portion of your earnings for these tax obligations. HMRC may also require you to make Payments on Account, which are advance payments towards your tax bill, usually due twice a year.

4. Completing Self-Assessment Tax Returns

Sole traders in the UK are required to file Self-Assessment tax returns each year. This involves reporting your income, expenses, and profits to HMRC. The deadline for submitting your tax return is typically January 31st for the previous tax year. It’s essential to file your tax return on time to avoid penalties and interest charges.

5. VAT (Value Added Tax) Registration

Depending on your annual turnover, you may need to register for VAT. If your turnover exceeds the VAT threshold (which can change annually), you must charge VAT on your sales and file regular VAT returns. Keeping accurate VAT records and complying with VAT regulations is crucial to avoid penalties.

6. National Insurance Contributions (NICs)

Sole traders also need to pay Class 2 and Class 4 National Insurance contributions. These contributions are based on your profits and help you access certain state benefits, including the state pension. Keeping track of your income and profits is essential for calculating your NICs accurately.

7. Seeking Professional Help

While it’s possible to handle your accounting responsibilities as a sole trader on your own, many find it beneficial to seek the assistance of an accountant or tax advisor. A professional can help you navigate complex tax regulations, optimize your tax liability, and ensure compliance with all legal requirements.

Being a sole trader in the UK comes with specific accounting responsibilities that should not be taken lightly. Keeping accurate records, filing tax returns, and meeting your tax obligations are essential for the financial health and legal compliance of your business. By staying organized and seeking professional guidance when needed, you can successfully manage your accounting responsibilities and focus on growing your business. Remember, compliance is key to a thriving sole trader business in the UK.

If you have any questions about the responsibilities a sole trader has regarding their accounts, please feel free to e-mail me.

During September’s Facebook Live, I talked about the different types of business structures there are in the UK.

When starting a business in the United Kingdom, one of the most crucial decisions you’ll make is selecting the appropriate business structure. Your choice can have far-reaching implications on your business’s legal responsibilities, tax obligations, and overall flexibility. I will walk you through the key factors to consider when choosing the right business structure for your venture in the UK.

1. Sole Trader

Being a sole trader is the simplest way to start a business in the UK. As a sole trader, you are the sole owner of your business, and there’s minimal paperwork involved. This structure is suitable for small businesses and freelancers.

Pros:

– Full control of your business.

– Simple registration and low administrative burden.

– All profits belong to you.

Cons:

– Unlimited personal liability for business debts.

– Limited access to funding compared to other structures.

– Potential higher tax rates as your income increases.

2. Partnership

Partnerships involve two or more people sharing the ownership and responsibilities of a business. There are two primary types: general partnerships and limited partnerships.

Pros:

– Shared responsibilities and expertise.

– Lower administrative burden compared to limited companies.

– Flexible profit-sharing arrangements.

Cons:

– Unlimited personal liability in general partnerships.

– Potential for conflicts between partners.

– Shared decision-making, which can lead to disagreements.

3. Limited Company

A limited company is a separate legal entity from its owners (shareholders). This structure offers liability protection and is often chosen by larger businesses.

Pros:

– Limited personal liability; your personal assets are separate from your business.

– Tax advantages, including lower corporate tax rates.

– Enhanced credibility for your business.

Cons:

– Complex administrative requirements, including annual filings.

– Less privacy; financial information is publicly available.

– Stricter regulations and reporting standards.

4. Limited Liability Partnership (LLP)

An LLP combines elements of both partnerships and limited companies. It provides liability protection for its members (partners) while allowing them to participate in the management of the business.

Pros:

– Limited personal liability for partners.

– Flexibility in management structure.

– Easier to attract investors.

Cons:

– More complex to set up and maintain than a general partnership.

– Stricter reporting and filing requirements.

– Not suitable for every type of business.

5. Community Interest Company (CIC)

CICs are a unique option for businesses with a social or community-focused mission. They have a primary goal of benefiting the community rather than private shareholders.

Pros:

– Legal requirement to reinvest profits in community initiatives.

– Eligible for certain grants and funding.

– Built-in social mission for a sense of purpose.

Cons:

– Limited distribution of profits to stakeholders.

– Increased regulatory oversight.

– Restrictions on asset transfers.

Choosing the right business structure is a critical step in establishing your business in the UK. Each option comes with its own set of advantages and disadvantages, so it’s essential to carefully consider your business’s goals, size, and industry before making a decision. Consulting with a legal or financial advisor can also provide valuable insights tailored to your specific situation. Ultimately, selecting the right structure will lay a strong foundation for the success and growth of your business.

If you have any questions about the different types of business structures there are in the UK, please feel free to e-mail me.

During August’s Facebook Live, I talked about some of the common myths about bookkeepers.

Bookkeepers play a crucial role in the financial well-being of businesses, ensuring accurate recording of transactions and maintaining financial records.  However, despite their significance, there are several misconceptions and myths surrounding bookkeepers.  In this blog post, we will debunk some of the most common myths people have about bookkeepers and shed light on the valuable contributions they make to any organisation.

Myth 1: Bookkeepers are the same as accountants.

One of the most prevalent misconceptions is that bookkeepers and accountants are interchangeable. In reality, while they both deal with financial matters, their roles and responsibilities are distinct. Bookkeepers are primarily responsible for recording daily financial transactions, maintaining ledgers, reconciling accounts, and generating financial reports. On the other hand, accountants analyse the financial data provided by bookkeepers, interpret it, and provide strategic financial advice to businesses.

Myth 2: Bookkeeping is an easy task.

Some people believe that bookkeeping is a simple and mundane task that anyone can handle. This myth undermines the importance of bookkeepers in maintaining accurate financial records. In truth, bookkeeping requires attention to detail, a deep understanding of accounting principles, and proficiency with accounting software. A skilled bookkeeper can make the difference between a business that thrives and one that faces financial challenges due to inaccurate financial information.

Myth 3: Bookkeepers only handle data entry.

Another myth is that bookkeepers are merely data entry clerks, mindlessly inputting numbers into spreadsheets. While data entry is part of their responsibilities, it is far from the only thing they do. Bookkeepers also categorize transactions, reconcile accounts, generate financial reports, manage accounts payable and receivable, and ensure compliance with financial regulations. They are an integral part of a well-organized financial system.

Myth 4: Automation will replace bookkeepers.

With the rise of automation and accounting software, some people believe that bookkeepers will become obsolete. However, while automation can streamline certain tasks, it cannot replace the human insight and critical thinking that bookkeepers bring to the table. Skilled bookkeepers are essential for interpreting financial data, identifying discrepancies, and making informed decisions based on the numbers.

Myth 5: Bookkeepers are only needed for large businesses.

Many small business owners believe that they can manage their financial records without the help of a bookkeeper. This myth can lead to costly mistakes and missed opportunities. Regardless of a business’s size, bookkeepers are essential for maintaining accurate financial records, ensuring tax compliance, and providing valuable insights into the financial health of the company.

Myth 6: Bookkeepers are expensive.

Some business owners hesitate to hire a bookkeeper, thinking it will be a costly investment. However, the benefits of having a skilled bookkeeper far outweigh the costs. A bookkeeper can help save time, reduce the risk of financial errors, and improve financial decision-making, ultimately leading to cost savings and improved profitability.

Bookkeepers are an indispensable asset to any business, big or small. Their expertise in financial management, attention to detail, and ability to provide valuable insights make them crucial to maintaining the financial health and success of an organization. By debunking these common myths about bookkeepers, we hope to highlight the significant role they play in today’s dynamic business environment. Whether you are a business owner or an aspiring bookkeeper, it is essential to recognize and appreciate the value that bookkeepers bring to the table.

If you have any questions about bookkeepers and how they can help you grow your business, please feel free to e-mail me.

During this month’s Facebook Live, I talked about how to move from using a personal bank account for your personal and business transactions to a separate business bank account.

As a new business owner, it’s not uncommon to use your personal bank account for both business and personal transactions. However, as your business grows, it becomes essential to separate your finances and establish a dedicated business bank account. This transition brings numerous benefits, such as improved financial management, enhanced professionalism, and simplified tax reporting.

There are a series of steps that you need to follow to ensure that you get everything moved to your business bank account without causing issues with paying your suppliers.

Step 1: Evaluate your business structure and requirements.

Before setting up a business bank account, take some time to evaluate your business structure and financial needs. Consider factors such as the legal structure of your business (sole proprietorship, partnership, Limited Company, etc.), the volume of transactions, and the banking services you require. This evaluation will help you choose the right type of business bank account and the appropriate financial institution that aligns with your specific needs.

Step 2: Research and choose a suitable business bank account.

Research the different bank account options that are available to you and make sure that the bank account is right for your business.  Look at factors such as fees, transaction limits, online banking capabilities, customer service, and any additional features relevant to your business. Opt for a bank that provides a seamless banking experience and offers the necessary tools to manage your business finances effectively.

Step 3: Gather the necessary documentation.

To open a business bank account, you’ll need to provide specific documents to the bank. Typically, these include:

– Proof of business registration

– Proof of address for yourself and the business

– Your own photo ID

Every bank will have different requirements, so ensure that you have all the necessary paperwork in order to streamline the account-opening process and avoid any potential delays.

Step 4: Open your business bank account.

Once you have chosen a suitable bank and gathered the required documents, it’s time to open your business bank account. Schedule an appointment with a representative from the bank to initiate the account-opening process. Be prepared to discuss your business and its financial needs. During the appointment, provide the necessary documentation and ask any questions you may have about account features, fees, or other relevant details.  If the bank you are using is an online-only bank, you will need to fill out their application form.  Make sure you understand the process that your chosen bank has for getting a business bank account set up.

Step 5: Transition your finances.

To ensure a smooth transition, start by redirecting all business-related income and expenses to your new business bank account. Update your payment methods and notify your clients, customers, and suppliers of the change in banking details. It’s crucial to keep track of any automatic payments, subscriptions, or recurring charges linked to your personal account and update them accordingly.

Step 6: Monitor and manage your accounts.

Once your business bank account is up and running, adopt good financial practices to manage your accounts effectively. Keep detailed records of your business transactions, regularly reconcile your bank statements, and stay on top of your cash flow. Utilize the digital banking tools provided by your financial institution to monitor your account activity, set up alerts, and streamline your financial management processes.

Transitioning from a personal bank account to a separate business bank account is an important step towards maintaining a clear distinction between your personal and business finances. By following the steps outlined above, you can seamlessly establish a dedicated business bank account and gain better control over your financial affairs. Remember, seeking advice from a financial professional can provide additional guidance tailored to your specific business needs. Embrace this change, and watch your business thrive with the added organization, professionalism, and financial clarity a separate business bank account can bring.

If you have any questions about changing from using a personal bank account for your business to having a separate business bank account, please feel free to e-mail me.

During this month’s Facebook Live, I talked about bank accounts for business – what the legal requirements are, why you should have a separate bank account and what to look for when choosing an account.

Legal Requirements

While there is no actual regulation that says a self-employed business must have a separate bank account, it is still a good idea to have a bank account that is only used for the business.  This will help you to know exactly what funds the business has and ensures you have all business transactions accounted for.

If you are a limited company, there is a legal requirement for you to open a business bank account.

Why should I have a separate bank account for my business?

There are many reasons why you should have a separate bank account for your business, but I am going to touch on just a few of them.

Reason #1 – it is easier to see how much money the business has.

If the bank account is solely for the business, you will be able to see at a glance how much money the business has.  You won’t need to spend time trying to sort out what money belongs to the business and what money belongs to you personally.

Reason #2 – it cuts down the admin time needed for getting the accounts completed.

As mentioned in reason number 1, if the bank account is solely for the business, you won’t need to spend time trying to figure out which transactions belong to the business and which ones are personal.  Having a dedicated bank account will make it much easier, and more efficient, for categorising the transactions and getting the accounts up to date.  It will also help reduce your stress levels because you won’t have to be trying to remember whether a transaction was personal or not.

Reason #3 – it helps with reconciling the bank account.

At the end of the month, you will be able to properly reconcile the bank account and easily track customer payments you’ve received so you can make sure your debtors’ list is up to date.  This means that your accounts will accurately reflect how much money the business has.

Reason #4 – it makes HMRC inspections easier.

If HMRC ever do an inspection on your business, and you are using a bank account for both personal and business use, they will go through every transaction on the bank statements and ask for proof that each transaction is for business or personal use.  It can make things very complicated and time-consuming, not to mention stressful.

Reason #5 – you can connect the bank account to your account’s software (if it’s allowed).

With a lot of the accounts software that is now available, you can connect your bank account to the accounts, which will allow for the transactions to be pulled into the software, ready for categorising.  This means that the transactions won’t need to be manually entered into the accounts, making completing your accounts more efficient.

What should I look for when opening a bank account for my business?

Every business is going to have different needs, so it is important that you understand what your business requires before opening a bank account.  For example, if your business makes or accepts a lot of foreign payments, you will want to find a bank account that allows for this feature but doesn’t charge a lot for it.

Do you need to be able to go into a branch to deposit cash or cheques regularly?  If so, you will want to look at a bank that has a physical branch and not just an online bank.

Make sure you read the terms and conditions for any bank account as some banks will not allow self-employed businesses to use a personal bank account.

Find out whether there will be regular monthly fees and whether there is a period of free banking or not.

If you are using software like QuickBooks Online, Xero, Sage, or FreeAgent – can the bank account be set up to use the bank feed?  If not, can you download the bank transactions to a CSV file so they can be imported into the software?

You will want to make sure that you can get monthly statements for the account so that they can be used to reconcile the bank account within your accounts.

There are so many different types of bank accounts available now, so it is imperative that you research the different options that are available and choose the right one for your business.

If you would like to talk about having a separate bank account for your business, please feel free to e-mail me.

During this month’s Facebook Live, I talked about best practices businesses can put into place to help them keep their financial documents organised and why it is so important.

The backbone of keeping your accounts up to date is keeping accurate financial records.  This includes keeping copies of sales invoices, purchase invoices, receipts, bank, and credit card statements. Using these vital pieces of information will help you to have a better understanding of the financial picture of your business, and you will have proof of transactions if HMRC ever does an inspection.

Every business within the UK is required to submit information to HMRC.  It could be submitting regular VAT returns, weekly or monthly payroll information as you are an employer or end-of-year tax returns.  The information that you submit to HMRC needs to be accurate and complete, and without ensuring that you have the documentation to back up those transactions, you won’t be able to do this.

For a business that is just starting out, getting into the habit of keeping the required documents is beneficial as when the business grows and has more records that need to be kept, you will already have all the necessary processes in place and be used to them.  If you are an established business and you don’t have any processes in place for keeping your financial documents, it isn’t too late to start.  You can start out by ensuring that you keep copies of all purchase invoices/receipts, and once you have those processes sorted out, move on to keeping the sales records.

HMRC now doesn’t require you to keep these records in a paper format, you can store them in a digital format!  This makes it even easier for a business to store the necessary information, as you don’t need to find places to store physical paperwork, you can save the documents to your laptop, in the cloud or even in your account’s software (if it’s an available feature).  While you don’t have to keep your purchase invoices/receipts and sales records in digital format, there are some documents like the C79 VAT Import Certificate, that HMRC does still require you to keep in paper format.

Tips for keeping your records:

1. Set up a file system to store your receipts on your computer or a cloud-based system like DropBox, Google Drive, or One Drive.  You will want to have a folder for each tax year, and within that folder, a folder for each month.  That will help you to be able to keep track of the information better.  You could even have a separate folder within each month for sales and purchases, and then a folder within those ones for what you have processed.  You can make this system as simple or as complicated as you want and set it up in a way that suits your business.
   
   As soon as you have been sent a receipt or invoice via e-mail, save it to the correct folder.  If you get any invoices or receipts in paper format, take a photo of them, or scan them and save them to the relevant folder.  If you have items that you pay for on a regular monthly basis and you aren’t sent an invoice for those, but you can download the invoices from an online portal, make sure to build that step into your processes so that you don’t forget to get those invoices each month as well.
   
   It is a very good idea to ensure that however, you choose to store your files digitally, you do have a backup copy, just in case something were to happen to the original.  If you upload the items to a cloud-based storage system, you could save them to an external hard drive.
   
   
2. If you are using cloud-based accounts software, you may be able to attach a copy of your invoices or receipts to the individual transactions.  With the requirements for MTD coming into force, you will be required to provide proof of each transaction, so what better way to do that than by attaching the documentation to the transaction?  Not only will you be able to provide proof to HMRC about what a transaction is for, but it also doubles up as a storage system for the records.
   
   
3. Perhaps you have a bookkeeper or accountant that does the regular bookkeeping work for you?  As well as storing the documents yourself, make sure you get into the habit of sending the information to them straight away so that they can keep your accounts up to date.  Talk to them and find out if they already have a process for receiving and storing the information from their clients that they need.  Include those processes into your own business processes so that everyone within your business knows how to get the financial records over to the bookkeeper or accountant.  For example, I ask clients to upload their documents to specific folders on Accountancy Manager or to e-mail them to a specific e-mail address.  By sending the information to your bookkeeper or accountant, can also provide you with some redundancy if something happens to your copies.
   
   
4. With the majority of the cloud-based accounts software that’s available, they will either have an in-built receipt capture software that you can send or upload your invoices and receipts to, or have the ability to use a 3rd party app like AutoEntry, Dext or Hub Doc – to not only send the information to your accounts and attach the document directly to the transaction, but again it can also act as a backup storage system.  Have a look at your accounts software or speak to your bookkeeper or accountant if they do the regular bookkeeping work and see if either of those features are available.  Being able to upload or e-mail the information directly to the account’s software or a 3^rd party app, will make your processes a lot more streamlined and efficient.

Once you get into the habit of saving your documents, and/or sending them to your bookkeeper/accountant or the software, regularly, you will find that it saves a lot of stress as you won’t need to worry about the paperwork being lost or forgetting what something is for.  It will help you to ensure that your accounts are being kept up to date and are accurate.

How long do accounts records need to be kept?

The length of time you need to keep your financial records for depends on the type of business you have.  If you are a sole trader, you need to keep your records for 5 years.  If you are a limited company, you need to keep them for 6 years.

A lot of people assume that it’s 5 or 6 years from the date of the end of your tax year, but you need to keep the documents from January 31^st the year after the tax year ends.  This takes into consideration that tax returns don’t need to be submitted until January 31^st following the end of the tax year.  For example, for the 2022/2023 tax year, you will need to keep your records for 5 or 6 years from January 31^st, 2024.

If HMRC does an inspection on your business, they could ask for all records dating back to 2 previous decades, so the longer you keep your records for the better.  Being able to keep the records digitally can help with this as you won’t need space to store the physical paperwork.

Why is it important for a business to keep good financial records?

There are many reasons a business should ensure that they are keeping good financial records. 

These are the top 4 reasons:

1. By keeping good financial records, you will be able to keep your accounts up to date and ensure that the information within the accounts is also accurate.  This will then allow you to make better-informed decisions about the business.  You will know when you need to register for VAT, if you can afford to hire staff or even if that marketing campaign worked.
   
   
2. You will have a much better idea of the cash flow of your business.  It will make it easier for you to see who owes you money, and also who you owe money to.  You will be able to better plan for future expenses that the business will have.
   
   
3. Your stress levels will be greatly reduced by keeping your financial records straight and up to date.  Getting into the habit of storing your documents and providing them to your bookkeeper or accountant straight away, means that when your annual tax return is due, you won’t be scrambling to try and find the necessary documentation or trying to remember what a transaction was for.
   
   
4. As mentioned earlier, keeping good financial records can help with any inspections HMRC does.  You will be able to provide the information the inspector is looking for quickly and easily – especially if that information is attached to the transactions within your account’s software.  It can really help to reduce the chance of any errors HMRC might be looking for.

If you would like to talk about how you can ensure that you are keeping good records for your accounts, please feel free to e-mail me.

During this month’s Facebook Live, I talked about communication and why it is important.

As a business owner, when you are running a business, whether it’s selling products or providing services, it is extremely important that you communicate regularly with your customers.

It will depend on your particular business, what type of communication you need to have with customers, and how often.  You should always be clear and concise in all communication, especially in contracts.  Make sure that the contracts state clearly what services/products are being provided, the costs and payment terms.  It’s also helpful to include information about late payments and any termination clauses.

You also want to ensure that you make it clear what is your preferred method of communication – for example, e-mail only or calling a specific telephone number.  It is also important to make customers aware of your hours of operation and the length of time it will take for you to respond.

Whether you are self-employed, or have staff, if you (or a member of staff that deals directly with customers) is going to be away for more than a day, give plenty of notice to your clients and let them know if there is someone else that they can contact if they need to.

I’ve touched on some of the key items about communication from a business owner’s perspective, so now I’m going to talk about it from a client’s perspective.

As a client, you have a responsibility to communicate with your suppliers that are providing you with products or regular services – like a bookkeeper or accountant.  It is important that you communicate with them and provide them with the necessary information in a timely manner to complete your accounts.  Without that information, your accounts cannot be completed meaning you won’t have an accurate picture of your business.  It can also affect your ability to grow your business and you might miss any legal deadlines which would put you at risk of being fined by HMRC or Companies House if you are a limited company.

If you are going to struggle to pay an invoice on time, contact your supplier straight away to avoid any late payment fees.

Without communication, your business will not succeed.  You need to ensure you are communicating with your customers, your staff, your suppliers, and any other person or business that you encounter.

Ensuring that the information you provide to the public is clear, concise, and accurate will help you to grow your business and achieve your goals.  Make sure that your website is kept up to date with information about the business – contact details, the products, or services you provide, and members of staff if you have any.  By communicating with people, you will build relationships based on trust and that will lead to getting customers.

I have personally noticed that in the last few years, especially through covid, a lot of the infrastructure for communication has become sporadic – and that’s across all sectors – health, government, and education.  If accurate information isn’t provided to people in a timely fashion, it starts to cause doubt and confusion.

By ensuring that you communicate regularly with those you meet through your business, you will show them that you are trustworthy and that your business relationship with them is important.

As a bookkeeper, I know how important communication is.  I have a responsibility to my clients to ensure that they can meet their legal deadlines in terms of their accounts and to help them to understand the financial picture of their business.  However, I am not able to do this without being provided with the necessary information by the client to complete these tasks.  Even though MTD for Self-Assessment has been delayed, getting into good habits now of providing the information to your bookkeeper/accountant, or even you spending time on getting your accounts done on a weekly or monthly basis is a very good idea.  It helps you to have a better understanding of your business and it does reduce your stress in the long run as you won’t be worrying about what a transaction from 6 months ago was for.  You will have more control over your cash flow and be better prepared for any tax owed.

If you would like to talk about how to improve your communication within your business, please feel free to e-mail me.

During this month’s Facebook Live, I talked about what IR35 is and how it affects workers.

What is IR35?

IR35 is a rule which became law in 2000.  It is also known as the off-payroll working rules.  IR35 was put in place to stop workers (mostly contractors) from being able to work for a company as an individual when they are really an employee.  If someone falls under IR35, they are taxed at the same rates as if they were an employee.

Who does IR35 affect?

IR35 affects all workers, or contractors, who are not self-employed.  The workers will usually have their own company – it could be a limited company, partnership or individual – and they work through that company.

Someone could be working through a limited company and not be affected by IR35 – it all depends on the circumstances for each of the clients a business provides services to.

How do I tell if IR35 affects me?

The first thing to establish is whether you are definitely self-employed.  HMRC have drawn up several statements to help someone decide if they are self-employed.

In order to be classed as self-employed, most of the following statements need to be true:

• You put in bids or give quotes to get work
• You are not under direct supervision when working
• You submit invoices for the work you’ve done
• You are responsible for paying your own National Insurance and tax
• You do not get holiday or sick pay when you aren’t working
• You have a contract with each client that uses terms like self-employed, consultant or independent contractor

HMRC have an online checking system available that can help someone understand if they would be classed as employed or self-employed.  You can find the link to it on this page.

If HMRC are looking into whether you are truly self-employed or if you fall under IR35, they will look at all of the different factors and decide from there.  It is very important that any contracts you provide reflect how you work with your clients (ie you will be invoicing them for the work, whether you are being supervised by them, whether you get sick pay/holiday pay).

The next step is to look at the three key indicators that someone falls under IR35 or not.

1. Do you as the person providing the service, have the right to provide a replacement worker to carry out the contract if you are unable to do it yourself?
2. Is there an obligation on your client to provide you with the work and an obligation for you to carry out that work?  This is referred to as Mutuality of Obligations (MOO). 
3. Are you as the person providing the service in control of how the work is done, where it is done and when it is done?  The more factors that show that you as the service provider are the one that is in control, the more it will indicate that you do not fall under IR35.

There are other conditions that are looked at to help determine whether someone falls under IR35 or not and this includes things like who provides the equipment,

What happens if I do fall under IR35?

If after all the checks have been done, it is determined that you fall under IR35 (sometimes referred to as “inside IR35), you will be considered an employee of the client and will be subject to PAYE.  You will be required to pay the correct tax amounts for PAYE and National Insurance.  You will also have to declare on your tax return that you fall under IR35. There is guidance on the HMRC website about how to calculate the appropriate amount of taxes you need to pay if you are deemed to be under IR35.  You can access that page here.

If you are under IR35, the way in which you calculate your income is different.  You will not be able to claim all of the expenses a business is allowed to claim, as you are restricted to only being able to claiming a flat rate of 5% for general expenses, and any other expenses that are claimed can only be ones that employees are allowed to claim from their employer.  You can read about what those types of expenses are on the HMRC website. You are then allowed to claim capital allowances but only on any equipment that’s been bought that directly relates to the work you are doing and any pension contributions made to an approved pension scheme.

In terms of National Insurance, if you are under IR35, you will be required to pay Class1 and Class1a National Insurance contributions which are directly related to Employer National Insurance.  HMRC have further guidance on National Insurance contributions on its website.

As IR35 is quite a complex situation, especially when calculating the correct amount of tax that needs to be paid, I would advise that you have a bookkeeper or an accountant help you with filing your tax return and ensuring that the correct amounts are paid to HMRC.

If you would like further information about IR35, please feel free to e-mail me.

On March 15th, 2023, the Chancellor, Jeremy Hunt, announced several changes during the annual spring budget. A good portion of the announcements focused on childcare, but I will be looking at the announcements that will affect businesses in the UK.

1. All tax rates and allowances that were announced during the Autumn 2022 Budget have been confirmed and will stay the same.
   
   Personal Tax Rates:
   – basic rate of income tax for those in England, Wales and NI will remain at 20%
   – 45% higher tax rate will remain
   
   National Insurance Contributions will be paid by those who earn £12,570 or more
   
   Corporation Tax on profits of over £250,000 will increase from 19% to 25% with a marginal rate of 26.5% on profits between £50,000 and £250,000.
   
   
2. From April 1st, 2023 until March 31st, 2026, companies that buy new and unused plant and machinery will no longer use the “super-deduction” method announced in March 2021. Instead, they will be able to claim 100% first-year allowance referred to as “full expensing”. They will be able to claim 50% first-year allowance for special rate expenditure.
   
   
3. The 100% Annual Investment Allowance that is available to all businesses that buy assets have been confirmed at £1 million/year permanently.
   
   
4. The dividend allowance that exempts some dividend income from tax is being reduced from £2,000 to £1,000 in 2023/24 and then to £500 in 2024/25.
   
   
5. Increase in National Living Wage for those aged 23 and over to £10.42/hour from April 1st, 2023.
   
   
6. Capital Gains Tax – the annual exempt amount is being cut from £12,300 to £6,000 in 2023/24 and then to £3,000 in 2024/25. This reduction will mean more individuals will be required to file self-assessments due to needing to report chargeable gains.
   
   
7. The changes to Research and Development announced during the Autumn 2022 Budget will be included in the Spring Finance Bill 2023.
   
   Additional R&D Tax relief will be made available for R&D intensive SMEs that are eligible and these will take effect from April 1st, 2023.
   
   
8. VAT – to help the NHS, from May 1st, 2023, health care services provided by staff that are directly supervised by registered pharmacies will be VAT exempt. In Autumn 2023, zero-rate VAT will be extended to medications supplied via prescriptions through Patient Group Directories.
   
   
9. Investment Zones – The government will establish 12 investment zones across the UK. Each area will have to submit proposals and once approved the zone will be established. Each zone will be able to access special funding worth up to £80 million over a 5-year period.
   
   
10. The government will be looking at the tax system for small businesses and implementing a number of changes to make it easier.
    
    

This blog post only touches on some of the main highlights from the Spring Budget. You can read the full budget in full on the HMRC website here.

During this month’s Facebook Live, I talked about what different accounts software there is, how to find out what’s best for your business, and even some apps that can help make keeping your accounts more efficient.

There are a lot of different types of cloud-based accountancy software out there, and the public is constantly bombarded by ads about how they are so easy to use – “it’s just a click of a button”.  What those ads fail to explain, is that while there is some truth to just “clicking a button”, you have to have the knowledge of where to put the information.  Understanding where the information should go and how to enter it so that your accounts are accurate, and you aren’t over or underpaying your tax, will save you a lot of issues down the line.  I have seen things in the past where clients have recorded transfers of money from their main bank to the savings account as income which if I hadn’t spotted what they had done, could have resulted in them paying a very large sum of tax due to their income being overstated.

If you want to do the bookkeeping yourself, I urge you to get training on the software to help reduce any mistakes that could happen.

Some of the most common ones that people hear about are:

• QuickBooks Online
• Xero
• Sage
• FreeAgent

Several banks now also offer accounts software attached to the bank account – but these may not do everything you need software to do.

Which software should I use?

The software that someone uses is going to be down to personal choice.

Before you choose the software to use for your accounts, you need to understand what it is you need from the software:

• Do you need to track VAT?
• Do you need to track inventory?
• Do you need to record multi-currency?
• Do you need to be able to add additional information to the accounts and not just use the bank feed?
• Do you need to be able to track supplier invoices if you don’t pay them straight away?
• Is it compliant with the current guidelines – i.e., compliant for MTD for VAT?

Once you know what you need to be able to do with the software, you should then look at the following:

1. Do I have any systems in place already, like a CRM system such as Zoho, that can be linked to the accounts software?
2. If I sell my products/services through a website, can I link the website to my accounts software so it can get my sales data automatically?  If it can’t link directly to the software, are there any apps out there that will allow the sales data from the website to be imported into the accounts software?
3. What type of support comes with the software?  Is the support only available via e-mail or can you get telephone support?  Some of the accounts software only allow e-mail support.
4. What is included in the cost of the software?  If the software has different packages, what is available in each package?  Does a particular package provide you with everything you need to be able to do?  Are some of the fundamentals of keeping accounts, like reconciling, only available on some packages?
5. If I have a bookkeeper or accountant, am I able to get the software through them at a discounted rate?
6. If you don’t currently have a bookkeeper or accountant and decide in the future to get one, can they work with the software you are currently using?
7. If you have a bookkeeper or are going to be using a bookkeeper, will you even need to be able to do anything with the software (i.e., if you won’t be doing the actual bookkeeping work)?  You will want to ask the bookkeeper/accountant if it will provide you with the information that’s required to meet any legal obligations but to also be able to make informed business decisions.

One of the best pieces of advice I can give you about finding the right software for you is to play around with the software – on your laptop and on your phone/tablet – if they offer a free trial period.  This will give you an idea of whether the software is going to be something you are going to be happy with using.

With the advancements of cloud-based software, there are so many 3^rd party apps that can be used with different accounts software to help get the information from your existing systems into your accounts.  Not only that but there are apps that can help take the accounts software to the next level in terms of financial reporting or analysing cash flow and budgets.  The apps can help to improve your efficiency and grow your business.

Some of the most well-known apps are ones that can be used to capture purchase information – so being able to snap purchase receipts or manage your supplier invoices so that the information can be easily imported into the accounts.  AutoEntry, Dext, and Hubdoc are three of the most popular ones.  Personally, I use AutoEntry as it fits into my pricing structure and works well with QuickBooks Online.

One of my favourite apps is Excel Importer/Exporter by Saasant. It’s great for if you have a bespoke system that handles all of your sales/customers, and you need to get the information into your accounts.  You can download the information from your bespoke system in a CSV file, and then import it into the accounts using the app.  I use it for a few of my customers whose bespoke systems don’t have an app that can be used to get the information into the accounts.

I am also a fan of the apps that are by Intuit that work with Shopify and Etsy.  They can be a bit tricky and sometimes don’t import the information right (for example if a sale has been archived on Shopify before the transfer of information has taken place), so you do need to make sure you reconcile the information just like you do a bank account, but it really does make it so much easier to get the sales information in – especially if you are a VAT registered business and sell products as you are legally required to record your sales information on a daily basis.

When looking at 3^rd party apps, you need to do the same thing you have done for your account’s software – look at what it provides to you, what type of support is there, what are the costs, and whether it does what you need it to do.  Some apps do come with a trial period which allows you to try them out and see if it is going to be a good fit for your business.

You want to ensure that whatever accounts software you use, and any additional apps, are going to benefit you and your business.  They need to be able to help you make better-informed business decisions, improve efficiency, and help you to achieve your goals.

If you would like further information about how to find the right bookkeeping software for you or how to find apps that can help improve efficiency, please feel free to e-mail me.