Whether you are a sole trader or director of a limited company, it is most likely that the business began with an idea. That idea may have been to turn a hobby into a source of income or perhaps an identified gap in the market. At Accounting Clarkes, we work with a variety of industries and sectors, and businesses of all sizes. It certainly keeps our work interesting!
Answers to your questions
With every client, we guarantee that they have at least one question that is weighing on their mind – most likely it’s several questions! We love it when our clients ask us questions about their business, it shows that they want to get a better understanding of what’s going on.
There are some questions that crop up more times than others and we’ve decided to get the team together to answer them for you here.
- Should I be a sole trader or form a limited company?
At the start of your business journey, you’ll need to consider the legal structure and which would be best for you. We can’t answer this question generically without understanding what your business offers and your longer-term aspirations, but here’s some high-level guidance to think about.
As a start-up business, setting up as a sole trader is easier than setting up as a limited company – there’s less admin and the accounting requirements are less complex. As the company grows, there comes a time when forming a limited company becomes more tax efficient. There may also be opportunity to work with larger organisations which choose to work solely with limited companies due to the limited liability status.
- How can I save tax?
There are lots of ways to legitimately reduce the amount of tax you pay! There’s no one-size-fits-all when it comes to tax advice as tax planning considers both the individual and the corporate perspectives. The key here is planning. Understand what your liabilities are and then which reliefs or allowances might be available to you. We share our top tax savings tips in this blog.
- How do I know when to pay tax?
This question possibly pains us the most. Why? Because if you fail to pay your tax on time, HMRC will apply a late penalty fee and you’ll be charged interest on the amount you owe. It is a waste of your money and a mistake which can easily be avoided.
As a general rule of thumb, if you pay your tax by self-assessment, you’ll have until 31st January to submit your tax return and pay the tax you owe for the previous tax year. So, for the 2022-2023 tax year, the deadline is 31st January 2024.
If you have a limited company, you’ll have to submit annual accounts and a company tax return. These must be delivered to HMRC no later than 12 months after the end of your company’s accounting period. The Corporation Tax bill must be paid no later than 9 months and one day after the end of the accounting period.
If you are VAT registered (for which the 2023/24 threshold is £85,000 in turnover) you’ll need to file a VAT return for each accounting period, which is dependent on which VAT scheme you have signed up to and the VAT period you chose on registration. VAT returns are either due monthly, quarterly or annually. If you are on a monthly or quarterly VAT payment scheme then you will have one calendar month plus 7 days to submit your VAT return after the end of an accounting period (the previous month or previous quarter). This is also the deadline for VAT return payments. Whether you have no VAT to pay or reclaim, you must submit a VAT return to HMRC on time.
If you have joined the annual accounting VAT scheme, the deadline for submitting your annual VAT return is two months after the end of your VAT period. You pay interim payments, either monthly or quarterly, the VAT your estimate you owe. Any final payments must be made no later than two months after the end of the VAT period.
Your online account with HMRC should confirm the key return dates for you, as well as your accountant. Our best advice is always: Know your tax deadlines. Have them clearly detailed in your diary. Plan in additional time for submitting reports and returns accordingly.
- What’s the difference between a profit and loss and cashflow forecast?
This is a great question and it’s important that all business owners understand the difference between the two. Profit and cash are two distinct things.
Are you familiar with the term ‘cash is king’? Every business needs cash available to keep the business viable on a day-to-day basis. There will be bills and suppliers to pay even when customers aren’t paying you on time. A cashflow forecast measures the cash flowing in and out of the business, and shows you how much cash is available at a given point in time. These figures will need to include VAT.
A profit and loss account looks at the bigger picture – is the business making money or losing it? It measures how much money remains once all the expenses have been paid. Profits are important as they allow you to pay yourself a salary and reinvest back into the business to develop it further. The figures in your profit and loss forecast should not include VAT.
Having a clear perspective on profit and cash in the business with help you manage finances and make strategic decisions with more confidence.
- What’s the best accounting software I should use?
The short answer is the one that best suits the needs of you and your business! There are many accounting software providers out in the market. The most common providers we work with are Xero, Quickbooks, Sage and FreeAgent. They all have their advantages and their quirks, and some are better suited to particular industries than others. It’s also worth considering the apps which integrate with them. These can often save you time with tasks such as logging mileage and expenses. If you really aren’t sure where to start, we’re happy for you to give us a call and we’ll offer our opinion.
Do you have more questions about your business numbers?
Questions are great at helping you to better understand how your business is performing. There’s no such thing as a silly question! If you have questions that you’ve been too shy to ask, we’d be happy to help. It’s important to us that our clients understand the numbers in their business, that they have meaning and they can use this insight to make decisions.
Speak with our friendly team by calling 01252 612484.