Accounting, Tax & Bookkeeping Business Basics Steven Northam

Content Introduction Accounting Responsibilities Keeping Organised All Things Taxation How Do I Cope? Overview

Introduction Accounting! Often the pain of business life.. Seems very confusing (it can be!) Absolutely paramount its done correctly Save fines, problems and headaches!

Business Accounting, the basics. You need to record “transactions” Money coming in Money being spent Keep receipts, invoices and bank statements Need a 100% audit trail Simple at the outset.. Getting it correct will save time and money!

Sole Trader / Self Employed Accounting responsibilities? Spreadsheets/Excel/Google Docs Paper? Scanning Apps All you income is taxed, rate depending on your income Need to keep records for 5 years Works well for small start-ups Not tax efficient if you grow

Limited Companies Accounting responsibilities? Keep records of transactions 6 years worth legally required You MUST file annual accounts, VAT returns and PAYE and a Corporation Tax return with HMRC You MUST file annual accounts and an annual return with Companies House

What is a legitimate business expense? Limited companies are separate legal entities You cannot spend company money of “yourself” Doing so is theft Legitimate business expenses only Such as… Legitimate expenses reduce your Tax bill.. Things you buy are owned by the company, not you personally (even though you may own the company!) NOT Cars, Watches, Holidays and so on..

Corporation Tax Tax you pay on “Profit” your company makes Currently this is 19% for most companies You can make a loss or 0 profit and thus pay no tax (spend your money) You have to make a profit to pay dividends (coming up) Is profit always the end goal?

VAT – Value Added Tax VAT is added to most goods/services, normally you wont be aware of paying it Currently VAT is charged at 20% If you make over £83,000 you must register and charge/pay VAT You can register at anytime If VAT registered you can claim back VAT on purchases (saving 20%)

Payroll, RTI, Auto Enrolment Payroll – paying staff Could do a 4 hour session on this! Complex! But certainly feasible Paying “Cash in Hand” will land you with £10k fine per person Online systems to make it bit easier! RTI – Real Time Information Pensions Auto Enrolment

Staying Organised (The Art of Bookkeeping!) HMRC state 6 years of records must be kept (5 years if self employed) Literally impossible to file accounts without good system to record whole year of transactions Best option often is to outsource to someone else as company grows…or try a using a good system.. Accountants around £1500-2000 per year Bookkeeping £30-200 per month

Xero – Cloud Accounting Self-Employment or Limited Company Online accounting system Quite straight forward to use and understand Creates invoices, links to banking, PayPal etc. Range of similar services also on the market (Sage, QuickBooks)

How can all this help me? Legally need to do it..but.. Understanding cash flow Raise invoices easily! Keep track of who owes you money and when Plan for profit and corporation tax Budget for expenses going forward Understand when bills are due Value your company as a whole Help you prepare annual accounts!

When do I have to do things by? Tax Year End/Starts 6th/5th April each year You company accounting year can be anytime you set, best to do 31st March to fit with tax year You have (generally) 9 months to file accounts after each year..AND pay Corporation Tax You must submit annual returns each year to Companies House Self employment 31st Jan each year for previous year Budget over the year for your tax bill!

All Things Tax… How do I get paid in the most tax efficient way? Each person have (this year) £11.5k per year tax free income You can thus pay yourself this and its tax free..yay, alas not much to live on.. The things get complicated, if you keep it legal then its fine… Lets look at the details..

What if I try and cheat? Good luck… Not worth the effort Use legal ways to minimise tax paid Paying tax is actually a good thing!! Offshore…no point unless you have millions HMRC estimate they loose £8billion a year via avoidance schemes and uncollected tax of £34billion a year!

PAYE – Pay As You Earn PAYE is the standard method to pay employees Directors are employees Shareholders are not by default Employee personal allowance £221 per week £958 per month £11,500 per year UK Basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £33,500 UK Higher tax rate 40% on annual earnings from £33,501 to £150,000 UK Additional tax rate 45% on annual earnings above £150,000

NI – National Insurance National Insurance is quite complex HMRC explain it.. You can pay zero NI and still have access to the benefits Large range of variables Paying something isn’t a bad thing and its not a huge amount!

Company Share Dividends How do I get paid in the most tax efficient way? Each person has a £2k dividend allowance, tax free per year Then the following tax is applied: Dividend ordinary rate - for dividends otherwise taxable at the basic rate 7.5% Dividend upper rate - for dividends otherwise taxable at the higher rate 32.5% Dividend additional rate - for dividends otherwise taxable at the additional rate 38.1%

So the best way to get paid is… PAYE - £950 per month, £11,400 per year Add £2k dividend allowance £13,400..no tax at all Take £22,500 more in dividends, pay only 7.5% (£1650) Total £35,500…£1650 tax bill On PAYE : £4500 tax bill and NI (above is roughly) This is why running your own limited company pays  You must report dividend payments on self assessment (like self employed people do)

Overview Often seen as the “boring” part of business Getting it correct is important Being on top of it is helpful! Often best to outsource to experts! But understanding the basics is key. These slides will be online  Next week – Social Enterprise

Questions, Discussion & Support Any questions? What else do you need to help/support you?