Small Business Accounting Basics That Every Business Owner Should Know

We at Doshi Accountants have a varied client bank and have catered accounting and taxation services from Fish and Chips shops and hairdressers, to doctors, pharmacies and dentists. Though our clients are not interested in accounting (that’s what we are there for), they are keen in knowing the basics of small business accounting as having some knowledge about the subject goes a long was in maintain transparency in the business accounts and avoiding careless mistakes. An accountant can tackle the accounts end for you. But it does make sense to have some bit of basic accounting acumen under your belt. One key to the successfully running of a business is being able to sense how your business is doing at a financial level. Merely getting the accounts done thus, is not the end; you need to understand the reports generated which is why we’ve tweaked in a few basics of bookkeeping. These should help you better appreciate the role and reports from your accounting firm. 

  

The Importance of Keeping the Books

Being a meticulous and monotonous task, most business owners prefer to hand over the bookkeeping to an accounting firm. However, you need to go through your books as well and ensure that transparency is maintained as you will be a better judge of your business finances if you are an informed one. How can you improve on profit and productivity if you are uncertain about the financial situation that your business is in? Thus, finances aren’t merely the subject of accounting services providers but instead, a topic that you too should as a business owner, build some acumen in.

Getting Through the Jargon

Understanding bookkeeping is a lot easier if you are clear with some basic jargon. For instance, an asset would be anything that generates revenue or something which the business will benefit from owning like: equipment, cash, inventory, accounts receivable and etc. A liability on the other hand would be opposite to what an asset is as it would be something that is owed by the business. Like a business loan for instance that needs to be paid back with the interest would be a liability; others include: accounts that are payable, unearned service-related revenue and interest payable.

1. When it comes to revenues/income the types that can come in include: rental income, interest income and sales income. Expenses or business expenditure would be the exact opposite as this would indicate what you are spending to keep business flowing in. Mostly payroll and the payment of vendors is the highest in rank of expenditure. Other expenses include: interest expense, salaries and wages, insurance expenses and utilities like heat and light. Equity would equate to the value of the business in monetary terms to each individual owner like stocks for instance or dividends, retained earnings ad owner’s capital.

2. Separate Banking Accounts

The first step that you need to take would be to separate your personal accounts and business accounts as this would make the whole banking process smoother. Not only does this help in making your expenses clearer but also if there is an audit then your personal assets are protected. For taxation and bookkeeping purposes having clearer accounts would also reduce the chances of error.

3. Record keeping is not an option

Important to keep an organised system in place as it makes the process easier if you have all your documents in order. Documents like bank and credit card statements, all cheques written including cancelled cheques, receipts and bills and customer invoices, tax returns, deposit slips and payroll documents all feature in the list of the documents you should keep handy. That’s all you really need to know as if you have a good accountant, you need not really worry much about the rest.

Do You Need an Accountant When Starting Up a Business?

Starting a new business is definitely not child’s play even after you’ve completed with most of the red tape. Most businesses start out on limited capital and thus, for the initial phase, cost cutting is high on almost every business owner’s priority list. Even if cash is not part of the crunch, efficient use of funds would ensure that you can stretch the funds that you already possess. Due to this mindset and goal prioritisation, most business owners start out handling the business accounting side themselves. Though this isn’t a bad idea if you are good with the books, however, being a financial element, it is better here to err on the side of caution. After all, an accountant would bring much more to the table than merely good calculation skills; experience and sound advice too are factors worth considering. 

How accounting for start-ups differ

When a business is already established it is easier to take the reins and lead on. It is at the initial phase that the most crucial decisions are made and hence, these are the ones that can be the make and break ones in the long run. At this stage, having a good accountancy firm, like Doshi Accountants (one of the top 100 UK accountancy firms) would assist as your accountant can work with you on elements like:

·        -  What the best business structure would be based upon the business scenario i.e. LLC, partnership, sole-trader etc.)

·         - Providing the accounting software (since the accountant does the accounts you will not need to invest in expensive software)

·        -  If you are unsure about how a business bank account is to be opened you can get advice from your accountant

·         - Having a look at the business that you have drafted

·         - More importantly, the compliance aspects will be double checked by your accountant so that you are all in the clear when it comes to the various government regulations as well as requirements

·         - Tracking of expenditure from day one is another crucial element that is often missed out by first time business owners. An accountant can give you tips on how to best track your daily expenditure so that you have things all accurately jotted down

·         Furthermore, expenses are of two types, business and personal. You cannot mix the personal with the business and vice-versa. For instance, you have your business credit card handy while paying your child’s school fees. This could hardly be mixed up with the business expenses but you may end up doing so if you are not careful.

Consistency – the key to smooth running

When business operations take on the regular mode, accounting services help in making things run all the more smoother and hassle free. The hassle-free element kicks in with the fact that you need not slum over the books regularly if you have someone appointed to do this for you. Besides, updating the books needs to be done regularly for it to be really effective as otherwise things do not work out. Your accountant at this stage proves invaluable in:

·         - Checking on your independent contractors – the CIS element if any

·         - Explaining your financial reports and statements

·        -  Helping with the payroll and work place pension administration

·         - Solving employee queries in relation to payroll and statutory payments

·         - Giving you tax advice and etc.

If you have any questions with starting a business or general queries about accounting, taxation, VAT or payroll, feel free to contact Doshi Accountants with them. We have a team of dedicated and trained professionals who are passionate about accounts and there to assist you.

All You Need To Know About Inheritance Tax – Think Smart, Plan Ahead

 Passing on one’s belongings be it monetary gifts, jewellery or property is the one solace to moving beyond the veil. However, the best distribution of that inheritance doesn’t just mean the proper allocation among your close ones by the memory of merit alone but also it is a high financial decision. After all, the inheritance in most cases is a means of support and it just doesn’t do to have that support’s value diminish because of inheritance tax issues that could have been at best avoided or reduced. Here’s a quick guide that’ll keep you prepared and ensure that inheritance tax does not diminish the charms of what you leave behind for those who’ll carry on your memory and name.

Inheritance tax – What is it exactly?

It is the tax that is calculated based on the value of the estate and other assets (deductible post demise) and it is paid from the same. After this, the proceedings go to the heirs.

• Paid on a one-off basis on the value of your property or estate post your passing
• Includes: assets owned, money, property, jewellery

 

The workings of Inheritance tax explained

The total value of assets will be worked out by the government (including liabilities). Outstanding debts would also be considered in this. The main assets would be:

Monies in bank accounts

• Business investments
• Properties and estates owned by you
• Pensions and similar schemes & etc.

 

1- Does Inheritance tax always apply?

When you are exempt from it: Inheritance tax is a complex thing as even if you do not need to pay the same, you still have ample forms to fill. However, the good news is that it is not always applicable. For instance: (1) if your estate’s value is found to be below the figure of £3,25,000 (2) is the estate is left to your civil partner or spouse (this includes leaving everything above the £3,25,000 figure)

If it goes above this figure then 40% tax is the amount levied which is why the spouse is the preferred choice of the inheritor. Even if you fall below the above threshold you would need to still report the same to the HMRC.

2- What if you give your home to your children?

Well, this is a bit on the brighter side as the threshold amount can increase in this case to around £5,00,000 (this includes foster, stepchildren and even adopted children). The same rule applies to grandchildren. Also, if your estate’s worth is below your threshold then this can be automatically added over to your partner’s threshold upon your demise if you are in a civil partnership or married.

3- When does Inheritance tax have to be paid?

You have a six-month window after inheriting to make the payment (roughly six months post the decease). When dealing with the property if you are unable to pay the lump sum instalments can be opted for over a maximum period of ten years. However, interest charges are applicable and thus, it might make better sense to approach an accountant over the same as it doesn’t make sense to part with cash needlessly.

4- How is Inheritance tax calculated?

If let’s say your estate is worth £5,00,000 and the tax-free threshold that you have been given is £3,25,000. Inheritance tax is levied at 40% on £1,75,000 (the £5,00,000 estate’s worth minus the £3,25,000 threshold).

When can you pay the reduced rate of Inheritance tax?

The reduced rate of Inheritance tax is 36% which applies only to part of your assets. But you first need to leave at least 10% or even more of the actual ‘net value’ to a charity of your choice.

5- What is taper relief?

Interestingly, the gifts that you have given while alive might still be taxable post your demise. The factor considered here was when that particular gift was given. Taper relief is the term used to refer to whatever Inheritance tax is charged on a gift when it is less than about 40%. In most cases, for taxes to apply the gift needs to be of a value of over £3,25,000 and the death of the giver would have to take place within seven years.

6- What have exempted gifts?

Small gifts that are made from your income do not count towards taxes. Examples of such are Christmas gifts or birthday presents. Such gifts are called exempted gifts. Furthermore, if gifts have been given by yourself and your civil partner or spouse then there is no Inheritance tax applicable. There is no limit to the amount that can be given but the condition is that they need to be living in the UK permanently. 

£3000 worth in the value of gifts can be given each tax year without this seen as an addition to the value of one’s estate. This is part of one’s annual exemption.

7- What defines a gift?

Any possession having a value example property, money and the like

Any loss of value that has been willingly incurred. For instance, you sell the house you own to your child for a lower than market value amount. The difference computed would be considered to be a gift even though you did not openly demarcate it as so.

Up to £250 in gifts on an individual basis can be given under the exemption as long as it is not used twice.

Thus, as you can see Inheritance tax is a complicated issue and considering that you want to leave your legacy behind in as much of its entirety as possible it would be best to consult an expert on the rules applicable so that you and your loved ones can get the best bet. One such way of doing so is by contacting a reputable firm of accountants. Doshi Accountants has dealt with accounting and taxation matters of its client for over two decades and more. Thus, if you have inheritance tax-related queries, we are happy to assist! Do contact us for a free no cost no obligation meeting where we can discuss the details of your future plans and offer you the relevant advice.

Let’s Make Your Business Accounting Simple

 

Accounting being a part of the smooth running of a business’ finances is irreplaceable. That is why though bookkeeping might not exactly be the favourite part of a business owner’s day, business accounting certainly cannot be given the backseat. Falling behind however, is more dangerous as then there is a pile of things that need to be done and tallying up past transactions is even more tough. Thus, if you are undaunted enough to want to tackle your accounts minus accountancy services then you should keep in mind a few pointers:

1. Separate the two

Ever heard the saying: Don’t mix business with pleasure? Well, this rings through the accounting element as well. There might be times when you want to use your business credit card as it comes in handy but it is best to avoid this urge. Though you might promise yourself that this is a personal expenditure and that you will adjust this later you might accidentally send out those personal expenditure invoices to claim against your VAT for instance. Thus, it is better to keep things simple right from the beginning. By keeping separate accounts from the beginning, you can keep a better track of income and expenditure. Also, you’ll effectively have all your deductible expenses at the same place. Even if you have not previously done this you can start doing so now as accounting is something in which you keep learning new things and implementing them is what will make the difference for your business. That is why if you have not already separated the two then set yourself to do so immediately.

2. Call for help

When in doubt is best to find out. Doshi Accountants is known to be among the top hundred UK Accounting and Taxation services firms. While it might seem noble and cheaper to get your accounts done by yourself, however, there is the legislative red tape that you need to think about. Plus, is your skimping on the accountant really providing you long-term profit or are you totalling up towards a loss? Doshi Accountants has fixed fees that are competitive and so you do not have to worry about the expense. Instead, you should consider the time that you would save which can be better utilised when you devote it to your business-related problems instead of the accountancy related ones that even an accountant can deal with you. After all, no one knows your business like you do. Thus, you are the best person when it comes to brainstorming and working towards the betterment of your business plan.

3. Keep a track

Perhaps having a look at your business financials is not something you can set aside time for every day. But you can do this same activity every week at least. If you keep a note of your expenses then you are better informed and can make wiser decisions.

4. Employees need to be paid

One of the biggest business expenses that one needs to consider is the payment to employees as that is every payroll event. When you keep a track of things you will be able to work out a better investment plan.

5. Don’t forget to track payments

When invoices pile up it gets more difficult to make payments and also gain credit. Thus, you would need to record both payments made as well as payments pending so that you have a better grip on things. The same applies to your customers as well since, some might not be paying you at once. In this case, you need to keep a record so that you have an updated list of the current outstanding.