The economic situation in recent times has resulted in many people who were previously employed looking to start their own business.
In our experience, many new businesses encounter similar issues with regard to accounting and tax matters.
Record keeping system
Businesses are required by law to keep adequate financial records. The level and nature of record keeping required may vary from business to business but should always include records of all transactions and invoices for all sales and expenses.
There are many different forms in which financial records can be kept, for example a cashbook, spreadsheets or bespoke computer packages.
Financial year end
Accounting date is a matter of choice. Sometimes commercial reasons relating to the nature of the trade will dictate the most appropriate date.
Choice of accounting date will also dictate the timing of payment of tax liabilities.
It is possible for an unincorporated business to defer tax liabilities by using an accounting date early in the tax year, for example April 30.
Treatment of expenditure
Not all expenses incurred by the business will be deductable for tax purposes. There is a distinction between revenue costs, which can be deducted from profits and capital expenditure (for example, equipment, vehicles), which may qualify for capital allowances. Timing of expenditure can also influence the tax treatment.
HMRC and VAT registration
All new businesses are required to notify HMRC when commencing trading. The current compulsory VAT registration threshold is £70,000. The business will be required to register for VAT when the annual taxable turnover reaches this amount. Voluntary registration can be beneficial, for example if substantial VAT is incurred on costs or the customers of the business are VAT registered. There are various planning techniques which may defer compulsory registration.
Registering as an employer
It may be necessary to register with HMRC as a new employer if an employee joins the business. This will entail maintaining payroll records and operating tax and national insurance deductions.
There is currently an incentive for new employers where a holiday from employers’ National Insurance contributions is offered to new businesses.
z The matters set out above are only a small number of the many tax and accounting issues typically encountered by new and growing businesses.
Professional advice, specific to the circumstance of the business, should always be taken.
If you require further assistance, Mark Thompson can be contacted on (01573) 224391 or firstname.lastname@example.org.