Speaking to an accountant can provide a great deal of clarity and so we have compiled a short list of some of the most frequently asked questions.
Why do I need an accountant?
Accounting and tax matters are so complex. Attempting to deal with these issues yourself can result in errors which might come back to haunt you by way of an HMRC enquiry or might lead to overpayment of tax. A good accountant will also help to keep your feet on the ground and help with decision making on an ongoing basis. Often the greatest benefit of having an accountant is avoiding grave mistakes with huge financial cost implications.
Do I need to register for VAT?
Whether or not you need to register for VAT depends on the type of business. Formally, you would only need to register if your business' turnover exceeds £85,000. Some businesses are exempt and cannot register for VAT. Whilst on the face of it VAT appears to be straightforward, this can be a hugely complex and confusing tax system. It would be best to consult your accountant as it can differ enormously from business to business.
How long do I need to keep my business accounting records for?
The current year plus 6 previous years.
Is it worth my while having regular management accounts prepared?
Management accounts provide an in year snapshot of the business. If you apply for a bank loan or an overdraft, it is likely that the bank will require you to supply quarterly management accounts. However, below a certain size, it is likely that the business owner has a sufficient, in-depth, knowledge of the business. Management accounts in this case are probably not necessary. Above a turnover of roughly £500,000, it is highly recommended to have management accounts as it is almost impossible to have an accurate picture of where the company is without them.
We believe that if the company has a turnover between £500,000 and £1 million, then you should prepare quarterly management accounts as a minimum. Between a turnover of £1 million and £5 million, management accounts every second month would be recommended. A business with an annual turnover exceeding £5 million should have management accounts prepared every month. Some accountants would recommend this at lower levels.
Should I be prepared in case HMRC want to investigate my accounting records?
Absolutely. You should ensure that you have appropriate accounting systems and retention of records, as per question 3 above. Year-end accounts and management accounts need to be detailed and accurate. It would be advisable to have Professional Fee Protection Insurance, which covers professional fees arising from professional accounting services in the event of an HMRC investigation.
How do I know what expenses to claim?
You can claim all expenses that are wholly and exclusively to do with the business. This can include purchase of stock, labour, travel, insurance, subsistence, accommodation, subcontractors, utilities etc. However, it is always best to check with your accountant, who will have knowledge of costs relating to your industry sector.
Is there an advantage if I submit my personal tax return in before 31st October?
A paper return must be submitted to HMRC by the 31st October following tax year end and an online return needs to be submitted before end of January following the end of the tax year. By submitting early, you can have your tax liability collected through your tax code, prepare for the payment of any tax liability arising, or if you are due a tax refund you will receive this much earlier. Additionally, if the tax return is completed before the 31st of July, you can ensure you receive the correct amount of tax credits rather than estimating and having to correct again at a later date.
What is the self-assessment payment on account system?
The Payment on Account system is the system all self-employed people are required to use with regard to the payment of tax. A tax liability is due to be paid on, or before, 31st January following the end of each tax year, 5th April. The system requires that an individual provides two payments on account in advance of finalising their tax liability for the next tax year. In spite of popular misconception, these are not really advanced payments. As the payments are made in January and July just before and a little after 5th April respectively, they are just ensuring that HMRC receives cash at around the time it is due.
What should I do if I wish to change my company name after it has been incorporated?
You can change the name of a business at any time. However, if you want to change the name of a limited company you need to:
- Go on to Companies House register online;
- Select 'Company Name availability checker';
- Then check if the name you wish to use is available;
- If the name you wish to use is available, then 'log in' to your company profile on Companies House;
- On your profile, there is the option to apply to have your company name changed and you will be able submit an application from there.
- It may also be necessary to change the company Standard Industry Classification (SIC) Code.
These are just a few of the most commonly asked questions, there are many more issues that we are aware we have not addressed. If you have any further questions, please do not hesitate to get in touch.