It is interesting to see that small businesses in the United Kingdom are gradually progressing. And the number is said to have risen up to 4.5 million.
The above increase was not realized five years ago. But now we can see the increase. Despite the hard work of becoming a professional, there is still some struggling to become self-employed.
Aside from the fact that establishing a business is thrilling, the number one step and most important step to take is getting the basics right. Getting it right from the get-go sets the tone for any business meaning that earnings can be a lot higher and success can truly be achieved.
Financial aspect of the matter should be first considered. It is generally known that in as much as a business’s numbers are not well managed, there are possibility of meeting many challenges
Becoming an expert in maths is not needed to successfully run a small business; you only need basic knowledge of bookkeeping and finance.
Getting along with bookkeeping is a gradual process and if serious effort is well put in place, the rewards are many as it keeps your business in good condition. Also, there is always a choice.
That is, bookkeeping can be done manually or using modern accounting software online. Various tasks like dealing with invoices, recording expenses, monitoring outgoings and paying employees can really take a lot of time.
But suppose it happens that you do not get it done on time, seeking for an assistant to perform the service for you is a wise decision.
Making a yearly financial record of your business should be presented in a formal record and well prescribed format. In it, you include sales, costs, assets like stock or machinery or equipment and debit. Submitting accounts depends on whether you operate as a sole trader or a limited company.
You can choose when your accounting year is to end, but since taxable income for sole traders is calculated on a specific interval of time, say in month of April, the account should back up the tax return – it makes sense for sole traders and partnerships to have an accounting year that runs from 1 April to 31 March. The relevant accounts need to be completed before the following 31st January, to be used when completing your self-assessment tax return due on that date.
If you operate a limited company, all you need to do is to choose your accounting year that will fit your business condition so that you can complete and file accounts every year with Companies House.
It is required of all UK limited companies to pay this, and it is currently charged at 20 per cent on any profit generated within the year up to £300,000. It is therefore somewhat higher for companies with profits above this mark.
A corporation tax return must be completed, with tax due for payment to HMRC within nine months of the accounting period.
Calculating your personal income tax on all your income for the year (6 April to 5 April) requires that you feel another form.
This form must be completed, filed and any tax paid no later than the 31 January following the previous 5 April tax-year.
Available to everyone is a tax-free personal allowance of £9,440 (until April 2014) which is approximately the next £32,000 of ‘basic rate’ income.
Above this personal allowance is taxed at 20 per cent. Any income above this falls into the ‘higher rate’ band, and is presently taxed at 40 per cent, which then goes up to 45 per cent for earnings above £150,000. Anyone earning over £100,000 also starts to lose their personal allowance.
Also, among the employment (salary and wages) income comes national insurance, which is payable at various rates and thresholds. In the case of a limited company, dividend income is taxed at lower rates and there is no national insurance to be settled.
No matter what your business structure may look like, you must register for VAT if your annual turnover (sales) is £79,000 or more.
On the long run, if the turnover is below that sale, registration is optional. You will charge your customers at the standard 20 per cent rate of VAT, which means you need to add 20 per cent to your sales invoice values and then keep this amount aside from what your customers pay you.
You will then be able to reclaim any VAT you have paid on business-related purchases and expenses and you must pay the net amount of the two – VAT on sales less VAT on expenses – over to HMRC. VAT returns and payments are due on a quarterly basis.
Among what should be calculated is income tax and national insurance. However, this should be deducted from the gross wages and salaries of your staff and paid over to HMRC on their behalf. It is a monthly payment that’s deducted from your employee’s gross salaries, meaning that there’s no cost to your business.
National Insurance is deducted at a rate of 12 per cent for employees, although both income tax and NI only kick in once a certain earnings limit is reached. Employer’s national insurance is also charged at a rate of 13.8 per cent on the gross salary, again within certain thresholds. This is not deducted from their salaries and so it represents a real, additional tax cost to your business.
Knowing what to do and what best to do will make any small business accounting successful.