Company Tax Allowances

Understanding Company Tax Allowances And Tax Rates

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Corporation Tax Reliefs And Allowances

In the UK, company tax and allowance are complex and ever-changing. It can be difficult to keep up with all the changes, so we’ve put together this brief to help you understand how they work. In this brief, we’ll cover the basics of business tax and allowances, as well as how to stay compliant with the latest changes.

What is Tax?

Tax is a compulsory payment to a government, typically levied on income, profits, or wealth. Taxes are used to fund public services and amenities, such as roads, schools, and hospitals. Tax systems can be progressive, proportional, or regressive.

Company Taxes Rates

The corporation tax rates are determined by the company’s profits:

1. Main Rate
  • Rate: 25%
  • Applies to: Companies with taxable profits over £250,000
  • Description: This is the standard rate of corporation tax for larger companies and reflects the increase from the previous flat rate of 19%
2. Small Profits Rate
  • Rate: 19%
  • Applies to: Companies with taxable profits up to £50,000
  • Description: This lower rate is intended to support smaller businesses by reducing their tax burden
3. Marginal Relief
  • Rate: Effective rate varies between 19% and 25%
  • Applies to: Companies with profits between £50,001 and £250,000
  • Description: Marginal relief provides a gradual increase in the tax rate from 19% to 25% for companies whose profits fall between these thresholds

Other Tax Rates In The UK

Understanding the various tax rates that might affect your business is crucial. Here’s a breakdown of some of the main taxes:

a) Income Tax

This is a tax levied on the income of individuals and some types of business profits.

  • Basic Rate: 20% on income up to £37,700
  • Higher Rate: 40% on income between £37,701 and £125,140
  • Additional Rate: 45% on income over £125,140

b) Capital Gains Tax

This tax applies to the profit from selling certain assets. The rates depend on the taxpayer’s income band:

  • Basic Rate Taxpayers: 10% (18% for residential property)
  • Higher/Additional Rate Taxpayers: 20% (28% for residential property)

c) Dividend Tax

Dividend tax rates vary based on the income band of the recipient:

  • Basic Rate: 8.75% for dividends falling within the basic income tax band
  • Higher Rate: 33.75% for dividends within the higher income tax band
  • Additional Rate: 39.35% for dividends within the additional income tax band

Value Added Tax (VAT)

While not directly related to corporation tax, businesses should also consider VAT, which affects many companies, particularly limited companies:

  • Standard Rate: 20% on most goods and services
  • Reduced Rate: 5% on certain goods and services, such as children’s car seats and home energy
  • Zero Rate: 0% on specific items like most food and children’s clothes

Tax reliefCorporation Tax Allowances

These are deductions that businesses can claim on their taxable profits to reduce their tax liability. These allowances are designed to encourage investment, research and development, and other business activities that contribute to economic growth and job creation.

1. Annual Investment Allowance (AIA)

The Annual Investment Allowance allows businesses to deduct the full cost of qualifying plant and machinery from their profits before tax.

=> Current Limit: The AIA limit is set at £1,000,000 per year (as of April 2024). This generous allowance encourages businesses to invest in assets that contribute to their growth.

=> Qualifying Expenditures:

  • Plant and Machinery: Includes office equipment, machinery, commercial vehicles (e.g., vans and lorries), and certain fixtures like kitchen fittings
  • Exclusions: Cars, buildings, land, and items used for leasing are typically excluded

2. Capital Allowances

Capital allowances allow businesses to write off the cost of certain capital assets against taxable income.

=> Main Pool: Assets that do not qualify for the special rate pool are typically included here, with an 18% writing-down allowance.

=> Special Rate Pool: Includes assets such as long-life assets, integral features of buildings (e.g., lifts, heating systems), and thermal insulation. The writing down allowance is 6%.

=> First-Year Allowance (FYA):

  • Offers 100% tax relief on qualifying investments in energy-saving technologies and water conservation
  • Enhanced Capital Allowances (ECAs): Promote environmental sustainability by providing tax relief for energy-efficient equipment

=> Structures and Buildings Allowance (SBA):

  • Applies to new commercial structures and buildings. The annual deduction is 3% of qualifying costs

3. Research and Development (R&D) Tax Relief

=> Description: R&D tax relief supports companies that work on innovative projects in science and technology.

=> Eligibility: Projects must aim to make an advance in science or technology and involve overcoming uncertainty.

=> Benefits:

  • SMEs: Can deduct an additional 86% of their qualifying R&D costs, leading to a total deduction of 186%
  • Large Companies: Can claim a Research and Development Expenditure Credit (RDEC) at 20% of qualifying R&D costs, with a net benefit of 16%

4. Patent Box Regime

=> Description: Encourages companies to commercialize patented inventions and retain their IP in the UK.

=> Benefit: A lower Corporation Tax rate of 10% on profits earned from patented inventions and certain other IP rights.

=> Eligibility: Companies must own or exclusively license the patents and actively participate in their development.

5. Super Deduction

=> Description: A temporary allowance was introduced to stimulate business investment post-COVID.

=> Benefit: Offers a 130% first-year deduction on qualifying plant and machinery investments, effectively reducing taxable profits by more than the cost of the asset.

=> Duration: Available for expenditures incurred between April 1, 2021, and March 31, 2024.

6. Employment Allowance

=> Description: Reduces the National Insurance contributions (NICs) liability for eligible employers.

=> Benefit: Up to £5,000 off the employer’s NICs bill per year.

=> Eligibility: Most businesses and charities, with some exceptions (e.g., if a director is the only employee).

7. Creative Industry Tax Reliefs

=> Description: Supports companies in the creative industries, such as film, television, video games, animation, and museums.

=> Benefits:

  • Film Tax Relief: Offers a payable tax credit of 25% on UK-qualifying core expenditure
  • Video Games Tax Relief: Provides relief on 80% of the core expenditure
  • Theatre Tax Relief: Allows companies to claim a deduction of up to 80% of qualifying production costs

8. Business Rates Relief

=> Description: Reductions in business rates for qualifying properties and industries.

=> Types:

  • Small Business Rate Relief: For businesses with a rateable value of less than £15,000
  • Retail Discount: Temporary relief for shops, restaurants, and other retail properties

9. Loss Relief

=> Description: Businesses can use trading losses to reduce tax liabilities.

=> Benefits:

  • Carry Back: Offset losses against profits from previous years, leading to tax refunds
  • Carry Forward: Use losses against future profits
  • Group Relief: Transfer losses to other group companies to offset their profits

10. Property Allowance

=> Description: Simplifies the tax calculation for individuals earning income from property.

=> Benefit: An allowance of £1,000 for property income, allowing individuals to deduct this amount or actual expenses (if greater).

11. Apprenticeship Levy Allowance

=> Description: Supports employers in funding apprenticeship training.

=> Benefit: Employers can reduce their apprenticeship levy payments by up to £15,000.

12. De Minimis State Aid

=> Description: Various tax reliefs that fall under EU state aid rules.

=> Examples:

business expenses

Allowable Expenses for Corporation Tax

Businesses can deduct certain expenses from their taxable profits, reducing the amount of Corporation Tax they owe.

  • Rent or Lease Payments: For business premises
  • Salaries and Wages: Paid to employees
  • Cost of Goods Sold: Including raw materials and inventory
  • Business Travel: Including transport and accommodation costs
  • Marketing and Advertising Expenses
  • Professional Fees: Such as accounting or legal fees
  • Depreciation on Business Assets: Though handled differently for tax purposes

The type of business you operate can influence which expenses are tax-deductible. Consulting an accountant can help clarify allowable business expenses. For instance, retail businesses can deduct the cost of goods sold, while service-oriented businesses can focus on wage-related expenses.

Register For VAT

If you are starting a business as a corporation, it is essential to register for Corporation Tax with HM Revenue and Customs (HMRC).

  1. Incorporate Your Company: Register your company with Companies House
  2. Register for Corporation Tax: Use the HMRC online service. You’ll need your company’s Unique Taxpayer Reference (UTR)
  3. Provide Necessary Information: Include details such as your company name, address, and the date you started your business

Registration is typically required within three months of starting to do business.

Filing Company Tax Return

Filing a company tax return is a crucial responsibility for business owners.

  1. Gather Required Documents: Have your financial statements, invoices, and receipts ready
  2. Stay Updated: Keep informed about the latest tax changes and regulations
  3. Seek Professional Advice: Consider consulting a tax advisor for complex tax matters
  4. File on Time: Ensure your tax return is submitted by the deadline, typically 12 months after the end of the accounting period

Paying Corporation Tax Bill

After filing your tax return, you’ll need to pay any Corporation Tax owed.

  • Payment Deadline: Nine months and one day after the end of your company’s accounting period
  • Online Payment: Use HMRC’s online services for quick and secure payments
  • Extensions: Contact HMRC if you need more time or if you have issues making a payment

Common Tax Mistakes Made by Businesses

Avoiding common tax mistakes can save your business time and money, especially regarding corporation tax reliefs and allowances.

Here are some to watch out for:

  • Late Filing: Missing tax return deadlines can result in penalties
  • Incomplete Returns: Ensure accuracy and completeness in your tax return
  • Not Claiming Allowances: Make full use of available tax reliefs
  • Outdated Tax Knowledge: Stay informed about changes in tax legislation
  • Overpaying Taxes: Double-check calculations and consult with a tax professional

Frequently Asked Questions

=> DO YOU PAY CORPORATION TAX ON SALARY?

No, in the UK, you do not pay Corporation Tax on salary. Corporation Tax is levied on a company’s profits, which can include trading profits, investment profits, and capital gains, but not on salaries. 

=> WHAT IS THE TAX ALLOWANCE FOR A LIMITED COMPANY?

In the UK, limited companies don’t receive a personal tax allowance like individuals do. Instead, they are subject to Corporation Tax on their profits.

– A main rate of 25% for companies with profits over £250,000.
– A lower rate, often referred to as the “small profits rate,” of 19% for companies with profits up to £50,000.
– For companies with profits between £50,000 and £250,000, a tapering relief is applied, which means the effective tax rate will gradually increase from 19% to 25%.

=> HOW DO I AVOID 25% CORPORATION TAX?

– Utilise Available Allowances and Reliefs

– Pension Contributions

– Capital Allowances

– Income Shifting

– Deferral of Income

– Claim Goodwill

– Charitable Donations

Conclusion

Company tax and allowance in the UK are complex, ever-changing, and can be difficult to keep up with. The tax laws governing company tax have changed significantly since 2007 when new legislation was introduced.

As a result of these changes personal, pensions or companies need to stay aware of their obligations if they want to avoid hefty fines or penalties from HMRC (Her Majesty’s Revenue and Customs).

sme accountant

Accounting vs Bookkeeping Service | 6 Key Differences

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Accounting vs Bookkeeping

Accounting vs Bookkeeping services are two different processes that are often confused. While the importance of accounting is the system of recording, classifying & summarizing financial transactions, the fundamentals of bookkeeping is the practice of recording & maintaining these transactions in a specific way.

Key Differences

1) Accounting provides an internal overview of a company’s financial status while bookkeeping tracks individual dealings.

2) Accounting is used to make business decisions, while bookkeeping is used to track accurate financial information.

3) Accounting uses Generally Accepted Accounting Principles (GAAP), while bookkeeping may use other methods.

4) Accounting must be audited, while bookkeeping does not need to be.

5) Accounting records money coming in and money going out, while bookkeeping tracks individual transactions.

6) Accounting is mainly used for larger companies, while bookkeeping can be used for any company.

What Is Accounting?

Part of the accounting process is recording, classifying, and summarizing financial transactions to provide information that is useful in making business decisions. This information can be used internally by businesses or externally by authorities and other interested parties.

The financial accounting process begins with the recording of transactions. This can be done manually or electronically. Once the operation has been recorded, they are then classified according to their type.

For example, money, credit card and invoiced transactions would all be classified as income, expenses, assets, or liabilities. After the transactions have been classified, they are summarized into financial statements. These reports show a company’s financial position, performance, and cash flow at a specific point in time.

How Accounting Can Help Your Business?

By completing transactions, businesses can keep a trail of their expenses and revenue, which can help them to make informed business decisions. Also, financial accounting uses (GAAP), which allows businesses to compare their performance.

Additionally, accountancy can help businesses prepare tax returns, which can save them tons of money. Overall in the long term, accounting is a valuable service for businesses of all sizes.

What is GAAP?

Is a set of cost accounting standards that are used in the United Kingdom. These standards provide a framework for financial reporting and help businesses compare their performance. They are also used by tax authorities to ensure that businesses are reporting their finances accurately.

Accounting

Types Of Accounting

There are four main types of accounting: financial accounting, management accounting, public accounting, and government accounting.

1. Financial Accounting

Is the activity of recording, classifying, and summarizing a company’s economic transactions to provide information that is useful in making business decisions. This information can be used internally by businesses or externally by investors, creditors, and other interested parties.

2. Management Accounting

Is the activity of providing reports to managers so that they can make informed decisions about how to run the business. This information includes things like budgeting, performance measurement, and forecasting.

3. Public Accounting

Is the activity of providing financial accounting services to clients such as individuals, businesses, or non-profit organizations. Public accountants may work for accountancy firms or they may work for accounting departments in larger companies.

4. Government Accounting

Is the activity of providing accounting services to governmental entities such as state, local, and federal governments. Government accountants may also work for accounting firms or they may work for accounting departments in larger companies.

What Are Financial Statements?

A financial statement is a summary of a company’s financial performance over a specific accounting history.

1. Balance sheet

The balance sheet shows a company’s assets, liabilities, and shareholders’ equity at a specific point in time.

2. Income statement

Shows a company’s revenues and expenses over some time.

3. Statement of cash flows

Shows how a company’s cash has changed over a period of time.

4. Statement of changes in equity

Shows how the company’s shareholders’ equity has changed over a period of time.

5 Accounting Mistakes To Avoid

1) Not keeping track of your fixed and variable expenses. If you don’t track your expenses, you won’t know how much money your firm making (or losing).

2) Not preparing a written budget is critical, it helps you follow your expenses, forecast future income statement and make sound financial decisions.

3) Not keeping accurate financial reporting can lead to a number of problems for your firm, including inaccurate tax returns and difficulty securing loans or lines of credit.

4) Not paying attention to cash flow data could lead to financial instability.

5) Not treating employees fairly can put a serious damper on the business and accounts. Employers have to treat them fairly and in return, you’ll have a productive workforce that will help your business grow.

What Qualification is Needed to be an Accountant?

The simple answer is no, you don’t need a degree to be an accountant. Postgraduate education is beneficial but not necessary, just like other professions. Instead, the majority of people in the sector have completed an AAT (Association of Accountants Technicians) course.

This certificate is often the min. requirement for accounting entries or for certified public accountants, which trains you the basics up to expert skills, across three levels. With this certificate, you’ll be able to pursue a career in accounts in a variety of interesting sectors like forensic accounting, public sector, private sector etc.

What Is Bookkeeping?

Bookkeeping is the recording of individual financial transactions. It can be done manually or using cost accounting software. The aim of bookkeeping is to ensure that financial records are accurate and up-to-date.

Bookkeeping is essential for businesses, as it helps them follow their financial position and make sound decisions based on accurate data. It also helps businesses prepare tax returns and manage their cash flow.

types of bookkeeping

Types Of Bookkeeping

There are two types of bookkeeping, single and double-entry bookkeeping.

Single entry system

Single-entry bookkeeping is a simple method where each financial transaction is recorded only once, either as a debit or a credit. This method is typically used by small businesses and individuals who have basic accounting needs.

Double entry system

Double-entry bookkeeping is a more advanced method where each financial transaction is recorded twice, once as a debit and once as a credit. This method provides a more accurate picture of a company’s financial health and is recommended for larger businesses with more complex accounting needs.

5 Bookkeeping Mistakes To Avoid

1) Not keeping track of expenses is one of the most common bookkeeping mistakes.

2) Reconciling your bank statements is essential for ensuring accuracy in your financial records and history.

3) Not tracking inventory and sales makes it difficult to determine how much money your company is making or losing.

4) Not registering transactions on time makes it difficult to keep track of your business’s financial data.

5) Not using double-entry bookkeeping. This involves using debits and credits to make sure that the accounting period are accurate. For example, can help prevent human error. It can also help make sure that transactions are accurate and complete, which is important when it comes time to file taxes.

What Qualifications do you Need to be a Bookkeeper?

You don’t need a degree or years of experience to apply for an entry-level position. However, you should have good math skills, a basic understanding of accounting or bookkeeping practices, and software knowledge of programs like QuickBooks, Xero, Kashflow or FreshBooks.

The best guide to obtaining a qualification in bookkeeping is through AAT. This gives you a strong overall grasp of accounting courses including bookkeeping, economics and account preparation.

Also, get some practical experience “bookkeepers work” or training before you choose a career to become a certified public accountant and look for an accountant or bookkeeper role in accounting firms, companies or professional bodies.

Conclusion

The difference between accounting vs bookkeeping is the processes. Bookkeeping is simply the process of recording the financial transaction in a specific way, while accountancy takes these recorded transactions and interprets them to provide useful information for making company decisions.

Accountants and bookkeepers can be invaluable partners if you’re looking for help with your financial analysis or want someone to manage your books. They’ll focus on everything from generating budgets to filing taxes so you have more time on other important tasks! Contact MH Services today.

pay less tax

6 Tips How To Pay Less Tax in UK Legally

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Pay Less Tax In UK Legally

In these difficult economic times, it’s no surprise that more and more people are looking for ways to pay less tax. The UK has one of the highest tax rates in the world, so most people are looking for ways to legally reduce their tax bills.

6 Ways To Save Paying Tax

These are the following tips you can apply before your tax return to pay less tax in the UK. Plus, we have a bonus paragraph on how to find an accountant or bookkeeper?

1. Tax code

Back to basics. How to pay taxes? Our tax advice is, to first check your tax code and ensure it is correct, otherwise, you could face a higher tax bill. If you get it wrong it could end up costing you over £100 a month.

2. Allowances

There are a number of tax allowances that you may be able to take advantage of in order to avoid paying too much tax, which may include the personal allowance, the marriage allowance, the capital gains tax allowance etc.

3. Pension contribution

Paying more pension contributions is one of the best ways to save tax. By contributing to a pension, you can take advantage of tax relief on your contributions, which means you pay less tax overall. In addition, many employers offer matching contributions, so you can get even higher value for your money.

4. Charity or gifting

Giving to a charity does more than make you feel good; it also saves tax money and lowers your self-assessment tax return burden, however it is only accessible by adding Gift Aid to the donation. In addition, you must keep all records of the charitable donations to reduce your taxable income.

5. Sacrifice income

If you’re looking for a way to pay less tax this year, sacrificing your salary might be an option and it is absolutely legal. There are many different types of arrangements in which employers and employees can agree so that both sides can benefit without having any financial loss e.g. medical insurance, gym membership, child care, car leasing etc.

Contact your payroll department for more details or our accountant for tax planning.

6. Employ a companion

In the UK, the personal allowance (£12,570) is a limit on how much you can earn to not pay taxes. If you are a self-employed or business owner and your spouse or partner doesn’t work or they’re unemployed you might consider employing them and dividing the salary of ‘Yours’ between the two people. By doing that, you can reduce your tax bill.

pay less tax

How much is the income tax rate?

Income tax is paid at a rate of 20% for most people. This means that for every £1 that you earn, you have to pay 20 pence in tax. However, higher earnings will result in higher tax payments.

How to find accountants or bookkeepers?

When it comes to accounts and bookkeepers, it’s important to find professionals who can help you keep your company finances in order.

Here are a few tips on how to find a good accountant and bookkeeper:

=> Check with the Better Business Bureau to see if any complaints have been filed against potential accounting or bookkeeping firms.

=> Interview several accounting or bookkeeping firms before making a decision. Be sure to ask about their experience and what services they offer.

=> Make sure the bookkeeping or accounting firm is licensed and insured.

=> Ask for a free consultation so you can get a feel for how the bookkeeping or accounting firm works.

=> Make sure you are aware of and understand the firm’s fees and billing practices before starting work.

=> Get referrals from other businesses.

Conclusion

In this article, we’ve outlined several ways that you can pay less personal tax in Manchester or in the United Kingdom. These include taking advantage of tax allowances, making pension contributions, donating to charity, and sacrificing income tax.

We’ve also provided tips on how to find good tax accountants or bookkeepers. By following these tips, you can save yourself hundreds or even thousands of pounds each year. Let us know in the comments if you have any questions about tax planning or how to reduce your tax bill.

 

self assessment tax return

5 Quick & Easy Self Assessment Tax Return Tips

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Filing your taxes might seem complicated, but with the right tips and advice it can be a breeze. In this blog post we will provide some quick self assessment tax return tips and tax saving ideas to help make the process as easy and stress-free as possible, but first, let’s talk about a self-assessment tax return.

What is a Self-Assessment Tax Return?

It is a process of declaring your income and paying the appropriate taxes to the government. It’s important to file your taxes on time and accurately, so you can avoid any penalties or fines.

Who should complete a tax return?

Self-assessment service is mandatory for anyone who has earned more than £1,000 in the former tax year.

Also, you should file a tax return if the following applies to you:

  • Employment earning [£12,570+]
  • Savings and investments [£10,000+]
  • Dividends [£14,570+]
  • Property rental [£1,000+]
  • Tips and commission [£2,500+]
  • Capital gains [£12,300+]
  • Pension scheme [£2,500+]

=> If you’re self-employed or in a business partnership, you must file a tax return also even if your income is below the taxable limit. This is because you still have to declare your revenue and pay income taxes on it.

=> If you’re not sure whether or not you need to file a tax return, it’s best to speak with accountants or look up GOV.UK.

How to File a Tax Return?

There are several ways to prepare and file a self-assessment tax form, and the best option will vary depending on your circumstances.

To start, it’s essential to gather all necessary financial documents, such as income statements, expense receipts, and any relevant tax forms.

A) One convenient option is to leverage online resources and tools, many of which are available on the HMRC website. HMRC’s online platform provides a user-friendly interface that guides you through the entire process, ensuring you fill out the necessary fields accurately.

If you’re not sure how to file it, or you need help preparing your return, there are many resources available online and on the HMRC website.

B) If you prefer personalized assistance, consulting with an accountant or tax specialist is another avenue to consider. These professionals possess in-depth knowledge of tax regulations and can offer valuable insights tailored to your specific situation.

MH Services, for example, provides a free consultation 24/7, making it easier for individuals to seek guidance at their convenience.

What if I Make an Error?

If you make a mistake on your tax return form, you can usually fix it by submitting an amended return. There is a time limit for amending your return [12 months] from the submission date.

However, it’s important to be accurate, as any mistakes can result in penalties or fines. You can do this by filing a new return or amending an existing one. There are several ways to fix your tax affairs, so it’s best to speak with an accountant or tax specialist for help.

self assessment tax return tips

5 Self Assessment Tax Return Tips

1. Plan ahead for tax payment

The best way to make a tax returns walk in a park is to create a plan [add notes to your calendar] and stick to it.

2. Gather your income tax bill

Before you file your return, you have to collect all the relevant invoices. This includes income receipts, tax-deductible expenses and any other relevant data. Make sure to have everything ready before you start filing, otherwise your self-assessment could turn into a nightmare. If you are not sure what forms are needed contact an accountant.

3. Use an accountancy tax software

Using tax software can be a great way to file and then pay tax online quickly and easily. The software will ask you a series of questions about your income and expenses, and then generate the appropriate tax returns for you. There are many different options available on the software market, so find one that suits your needs and preferences.

4. Claim tax relief on expenses

One of the best ways to reduce your tax bill is to claim any eligible expenses. This could include things like travel expenses, home office costs, vehicles, child benefits or other taxable benefits. Make sure to keep track of all of your expenses throughout the year, and be sure to include them in your tax relief.

5. Get accountant help

If you are feeling overwhelmed or confused about the self-assessment process, don’t be afraid to ask for help. There are many tax return resources available, including accountant professionals, online self-assessment forums, and even accountancy software support. You don’t have to do it all alone – get the help when you needed!

How to Pay Income Tax?

Double-check the amount you have to pay. Make a one-time payment or set up a payment plan to spread the cost.

Income taxes are paid in one of two ways:

A) By deduction from your salary

B) By self-assessment, if you are self-employed or you have an income from the above-mentioned source

When to pay the tax bill?

The due date for the previous tax year is no later than the 31st of January.

What to declare?

Make sure, you are aware of all types of income e.g. property income, self-employed income and other income. There are penalties for failing to declare all relevant revenues.

Conclusion

Filing a self-assessment return can seem daunting, but with the help of the right accountancy service it doesn’t have to be. Our team has years of experience preparing and filing self-assessment tax returns for sole trader, self-employed people and trader business owners. We understand the tax year process inside out, so you can rest assured that your taxable income will be filed accurately and on time.

sme accountant

Why Accounts for Small Business [SME] are Important

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Accounts For Small Business

As a small business owner, you know that having good accounting practices is vital to the success of your company. Not only does it help you keep track of your finances and make sure that all of your taxes are filed on time, but it also gives you a clear picture of how well your business is doing overall. 

What Is An Accountant?

An accountant is a professional who helps businesses keep track of their finances. They can help you file your taxes, track your expenses, and make sure that your business is running smoothly financially.

Accountants are important for small businesses because they can help you stay organized and make sure that you are making the most of your money.

What Is Accounting For SMEs?

Accounting for small and medium-sized enterprises, or SMEs, is the process of tracking and recording financial transactions for a business. This includes tracking expenses, income, and assets, as well as preparing financial statements and filing taxes.

Accounting is important for SMEs because it helps them track their finances and make sure that they are operating efficiently.

Basics of Accounting

The three basics of accounting are: recording financial transactions, preparing financial statements, and filing taxes. These three tasks are essential for any business to keep track of its finances and stay compliant with tax laws.

A) Recording financial transactions

To ensure that a business is keeping track of all of its financial transactions, it is important to record them in a journal. A journal is a book where businesses can record their transactions chronologically. This allows businesses to track their income, expenses, and assets over time.

B) Preparing financial statements

After a business has recorded its financial transactions in a journal, it can then prepare financial statements. Financial statements show a business’s financial position at a specific point in time. They include the balance sheet, which lists a business’s assets and liabilities, and the income statement, which shows a business’s revenue and expenses.

C) Filing taxes

All businesses are required to file income tax with the government. To do this, businesses must keep track of their income and expenses throughout the year. They will then use this information to prepare their tax return. Tax returns must be filed by businesses of all sizes, from sole proprietorships to large corporations.

5 Principles Of Accounting

  1. Revenue honour: Revenue should be recognized when it is earned, not when it is received.
  1. Matching expenses with revenue: States that expenses should be matched with the revenues they generated.
  1. Full disclosure: Businesses should disclose all information relevant to their financial statements.
  1. Conservatism: Small businesses should be conservative in their accounting practices, and should not report revenue or assets that may not be realized. This helps to ensure that businesses are not overstating their financial position.
  1. Periodicity: Record business transactions periodically. Helps to ensure that financial statements are accurate and up-to-date.

small business accountant

Free Accounting Softwares

  • Zoho Books – Best accounting software around for project tracking and very small businesses
  • Crunch – Effective accounting software that integrates with major banks and easily records receipts
  • ZipBooks – A great software if you have a limited budget but still seeking a modern and feature-rich tool
  • AdminSoft – A good choice for small business owners if they need simple software without all the bells and whistles
  • GnuCash – Simple but hugely flexible software that has payroll and multiple currency features

Paid Accounting Software

  • QuickBooks – Comprehensive cloud-based accounting software that is perfect for small business owners for business bank account
  • FreshBooks – Easy to use and the best for all-rounders with a user-friendly interface and plenty of features that keep records
  • Sage – Perfect for less IT experienced small business owner that wants good value and multiple users solution and accounting features
  • FreeAgent – Isn’t the cheapest but the best if you are a limited company and want all the features for a fixed fee
  • Xero – If you starting a business and need software for small businesses that is simple but effective this will work

5 Basic Accounts For Small Business

The five basic accounts: Assets, Liabilities, Equity, Income, and Expenses. These chart of accounts are used to track a company’s financial position and performance over time.

  1. Assets:

Everything a company owns and can use to generate revenue. This could include cash, inventory, equipment, buildings and land.

  1. Liabilities:

All their possession including money owed to suppliers, loans, and credit card debt.

  1. Equity:

The ownership stake that shareholders have in a company. This is calculated by subtracting liabilities from assets.

  1. Income:

The money a company brings in from selling goods or services. This is also known as revenue.

  1. Expenses:

The money a company spends to run its business. This includes things like rent, salaries, and marketing costs.

Benefits Of Small Business Accounting

a) Increased accuracy and transparency

Financial statements that are accurate and up-to-date can help business owners make better decisions about their business. By recording financial transactions periodically, businesses can ensure that their financial statements are accurate and reflect the current state of their business.

b) Improved efficiency

Accounting software can help improve the efficiency of the company by automating many business transactions, such as invoicing and tracking payments. This can save businesses time and money.

c) Easier tax preparation

Businesses of all sizes must file tax returns and using an accounting system can make preparing your tax return much easier. The software will automatically track all your financial transactions, making it simpler to determine your taxable income.

d) Greater insights into business performance

By tracking financial data over time, accounting software can help business owners gain insights into their overall business performance, bank account and save time. This information can be used to make informed decisions about where to allocate resources and how to improve profitability.

Costs Of Accounting For Business Owners

The costs of accounting for a business can vary depending on the size and complexity of the business, as well as the type of accounting software used. However, most accounting software packages offer a range of pricing options, so business owners can choose the package that best suits their needs and budget.

In terms of the accounting system, in the UK the average cost of an accountant is £40-70 per hour. However many accountants offer accounting services and small business bookkeeping packages that are paid monthly or annually. e.g. MH Services annual accounts start from £149/year.

Accountant vs Bookkeeper

  • An accountant is someone who can provide you with advice on financial matters and help you file your taxes, also an accountant can represent you in front of the IRS if necessary.
  • A bookkeeper is someone who records financial transactions – bank statements, payroll – and prepares financial statements. Many companies use a bookkeeper to keep track of their finances, and cash flow and then hire an accountant for financial information, income tax advice and filing. Small business bookkeeping is vital to the success of a business.

accounts for small business

FAQ: Accounting & Bookkeeping

=> WHAT TYPE OF ACCOUNT IS A SMALL BUSINESS?

A small business is an unincorporated business that typically has fewer than 50 employees.

=> CAN YOU DO YOUR BUSINESS ACCOUNTS?

Yes, many small businesses do their own business accounts with the help of online software or bookkeeping services. However, in the long run, it’s worth hiring an accountant or bookkeeper who will help you with tax and payroll to ensure that the process of recording is accurate and up-to-date.

=> HOW DO SMALL BUSINESSES PREPARE ACCOUNTING?

One option is to use online software, which can automate many of the tasks associated with accounting, such as recording transactions and preparing financial statements. Businesses can also hire a bookkeeper to track their finances and then consult an accountant for tax advice and filing.

=> HOW CAN YOU FIND THE RIGHT ACCOUNTANT?

The best way to find is to ask other business owners for referrals. You can also search online for accounting firms that specialize in small business financial.

=> HOW MANY BUSINESS STRUCTURES ARE IN THE UK?

Sole trader, Partnership, Limited liability partnership, Limited company.

=> HOW DO I START A BUSINESS IF I’M SELF-EMPLOYED?

If you’re self-employed, you can start a business by registering with HMRC as self-employed. You’ll need to provide your National Insurance number and your business name (if you have one). You may also need to apply for Value-Added Tax (VAT registered) if your business turnover is more than £85,000/year. You can find more information on the GOV.UK website.

=> WHAT IS THE ACCOUNTING PERIOD?

The accounting period is the length of time over which statements and balance sheet is prepared. Most companies use a 12-month accounting period, although some may use a different period, such as a fiscal year.

Conclusion

Small businesses are the backbone of the economy and keeping accurate financial records is vital to their success. In order to be successful, small businesses need more than a good idea and hard work ethic – they also need sound financial management practices.

One key element of sound financial management is bookkeeping and accounting. By keeping accurate records of cash flow and tracking expenses and profits, small business owners can make informed decisions about their business’s future and save money. If you need some assistance MH Services is the right partner for your accountancy services.

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