Keeping records and receipts
Many new businesses are not used to having to account for their transactions, and may therefore forget to record them. This can mean they miss out on valuable tax deductions on expenses or, worse still, understate their income, leading to potential fines and penalties.
However there are a number of cloud accounting packages that allow you to track or submit your expenses on the go, from your mobile or tablet. This is particularly useful for those cash expenses you incur on the move. That said, it still takes discipline to keep on top of transactions so as to avoid a last-minute panic.
Another benefit of cloud accounting software is that you can store receipts and bills online rather than in shoe boxes – HMRC requires you to keep them for six years. Small businesses often do not have the expertise in-house to account for these transactions correctly.
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Another reason for ensuring your business keeps decent records is to help guarantee you get paid by your customers, which is of course a top priority for small businesses with limited cash reserves. Small businesses often fail to see this as a priority, however it’s important to have a system in place to help you chase clients once you have completed the work for them (some software even allows this to be automated). Or, even better, demand payment for some, or all, of your services upfront.
Ultimately, without cash your business will not be able to run effectively. More businesses fail through lack of cash than lack of profits. It’s also worth building up a good relationship with your bank manager if possible.
Deadlines and forms
Most small business have at least two deadlines to comply with, one for filing tax returns; the other for paying the associated tax bill.
If their turnover exceeds £81,000 most businesses will have quarterly VAT returns to file as well. On the plus side, the payment of the liability can be set up as a direct debit straight from your business bank account.
If you have a limited company, you may well have to file payroll RTI (real time information) returns each month before paying any employees (even if you are the only employee of your company). Furthermore, the company will have to file its annual accounts with both Companies House and HMRC.
As well as complying with these deadlines, the HMRC forms are notoriously difficult to understand, meaning an often simple tax return can take far longer than planned to complete.
Should you miss any of these deadlines, penalties can build up quickly. In extreme circumstances a company can be struck off. An accountant can help ensure you meet those deadlines, and perhaps help the business to save tax and grow its turnover and profits.
Dealing with company administration
Assuming the business is owner-managed, there are also a number of legal and financial issues that company directors must be aware of. They need to know how they can extract the profits from the business efficiently from a tax point of view (dividends/salary/loan). They need to ensure any dividends voted for are within the profits available after tax, so ideally they should be aware of profits as they go along. Finally, directors must not treat the company’s cash as their own private bank account. Having an overdrawn director’s loan account can lead to large tax deposits to HMRC until it is repaid.
Andrew Minsky is a chartered accountant at Nyman Linden Chartered Accountants, acting primarily for small owner-managed businesses. He tweets @nl_andrew.
This content has been sponsored by Xero, whose brand it displays. All content is editorially independent.
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