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Posts Tagged ‘Bookkeeping’

We’ve seen many new taxes come in under the radar over the past few years, but for me, this is probably the most badly thought-out, badly communicated of the lot. And once again, it’s being left to accountants and tax advisors to communicate the bad news.

If you employ staff, you’ll be familiar with the need to pay monthly PAYE and NI contributions to HM Revenue & Customs (HMRC) by the 19th of the following month.

Up until now, the legislation has been such that if you pay late, it doesn’t really matter. HMRC might write nasty letters – or even send someone round – but ultimately, there was no penalty for paying late. The trick was to get everything square by 19 May annually, and there was no comeback.

This changed on 6 April this year, when the new legislation came into effect.

Here is a brief synopsis of the new rules and penalties for those on the main monthly scheme:

  • pay your monthly liability by the 19th of the month following (this is the date by which the funds must be deposited in the bank account at HMRC – so beware of paying online on the 19th. Confirm with your bank that it will get there on time);
  • pay late once in any year and there’s no penalty – unless the payment is more than six months late – see below;
  • pay late two-four times in any year, you’ll be fined 1% of the total amount that is late (ignoring the first late payment), so, if your monthly payment is £10,000 and on four occasions you’re a day late paying, the penalty will be 3 x £10,000 x 1% = £300;
  • pay late five-seven times and you’ll be fined 2% of the total amount that is late (ignoring the first late payment);
  • pay late eight-ten times and you’ll be fined 3% of the total amount that is late (ignoring the first late payment);
  • pay late 11-12 times and you’ll be fined 4% of the total amount that is late (ignoring the first late payment);
  • if any payment is more than six months late, you’ll have a pay a penalty of 5% of the overdue amount. If the payment is 12 months late, you will pay a further 5%.

No due reflection is given to the extent to which you’re late. If you are one day late, the penalty will apply.

From an administrative point of view, the law allows HMRC to charge penalties at any stage during the tax year, or after the end of the tax year up to two years of the due date.

In 2010-11, penalties will be charged after the end of the tax year. Therefore, penalty notices will not be sent out until April or May 2011. So please don’t test the system and think you’ve got away with it – you will get a nasty shock in April next year!

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Tax is never a popular subject – made even less so by recent revelations that HMRC has got many of our tax codes wrong, meaning excessive charges for some. Mistakes by HRMC aside, ‘tax doesn’t have to be taxing’, as the saying goes. If small firms take the time to keep their books in order throughout the year, a mad dash at key dates in the taxation calendar can be avoided.

2010 has only just begun, so now is the perfect time to turnover a new (bookkeeping) leaf. Start by buying yourself some filing equipment, with different folders for sales invoices, paid and unpaid bills, bank statements and VAT returns, plus wages, if you have staff.

Now you have some inviting looking new folders, go through your in-tray – at least once a week – and put all your bits of paper in the appropriate place. If you set aside a small amount of time to sort out your books, weekly – or even daily – it shouldn’t become too much of a chore. Bookkeeping needs to be part of your routine, like reading emails, otherwise it can be all too easy to find something else to do instead.

Keeping accounts isn’t just sensible, it’s a legal obligation. Companies must keep all records relating to their VAT returns for a minimum of six years after the tax year to which they relate. As a minimum, you must record any income earned or expenses incurred by the company and retain all related documents, including receipts, cheque stubs, invoices, bank statements, PAYE records, etc.

To get a clear picture of where your money is going, your transactions must be recorded in a meaningful way. You should give your ‘expenses’ record a sheet of its own, with columns representing categories such as ‘rent’, ‘utilities’, ‘travel’ and ‘stationery’. This will give you an ongoing sense of where you might be over-spending, which can help you to cut unnecessary costs

Why rely on books or bits of paper when there is a wide variety of accounting software available? For a more simple and cheaper solution, an Excel spreadsheet is a perfectly useful tool for keeping records on your computer.

Keeping your records on a spreadsheet or using bookkeeping software enables you to see your total transactions in an instant. You can also search for a figure among your costs should a mystery debit appear on your bank statement and even produce projections based on the average transactions made in previous months.

You should be using your bank statements as a reference point, checking every figure in your bookkeeping records against transactions on your bank statement. This is a great way to identify missing receipts, while giving you a consistent monthly deadline to follow for getting your records in order.

Make sure you note all key deadlines for filing with HMRC. Set reminders on your computer, so you don’t have to rely on remembering to check your diary. The next one to note is the PAYE deadline on 19 May, when employers must register with HMRC to file online. HMRC is supplying free software so small businesses can file their employee data securely. For more information visit the HMRC website.

If you really can’t commit to the above, it may be time to call in an experienced bookkeeper. Of course, there will be an expense associated with this, but since it could free up your time and give you better information with which to make business decisions, it could be worth the investment.

Anita Brook is director of chartered certified accountancy firm Accounts Assist. Follow her on Twitter.

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Firstly, I guess I should tell you about my break for entrepreneurial freedom…

My brother and I left the security of good professional careers in June 1997 to buy a pub. Why? Well – it seemed like a good idea at the time, despite the fact that neither of us had even worked behind a bar in our lives! Despite a lack of experience, we raised equity from friends and family, got a loan from the bank and about a year later, bought and refurbished a pub.

Over the course of the next few years, we turned it into one of the most successful pubs in the area and in the process, more than quadrupled the turnover that the previous owners had achieved.

A big part of the original plan had been to produce our own beer; and once we had the pub operating well and a good operational team in place, we turned our attention to opening a micr0-brewery. Again, having no direct experience in the industry, we tracked down a consultant who advised us on brewery design and recipes. We converted an industrial unit in Battersea and started brewing. The beers we produced tasted great and sold well, even winning the occasional award! Sadly, the London market was not an easy market for brewers at that time, many pubs were tied and would not accept guest beers and the costs of distributing in London traffic meant that the brewery never did much more than wash its face.

One of our best sellers in the pub was a shot-sized vodka jelly product, until one day, our supplier stopped delivering. A (pre-Google) search on the internet did not reveal any alternatives, so we set about making our own. I got a recipe from an old friend, eventually sourced the pot and lid and started making vodka jellies in the pub kitchen. They sold well and after a while, we started getting calls from other bars wondering where we got the product from. One thing lead to another and we started selling nationally. Soon, we were attracting the interest of the big pub chains and it became clear that if we were going to have a proper go at it, a strategic investment was required. Nine months later we had a new round of investors, a new patented pot and lid, a manufacturing line in Wales, a storage unit in Liverpool and a full sales and marketing operation in place!

Over the next couple of years, we sold around 5 million vodka jellies. Sadly though, it wasn’t enough. The pub chains were demanding increasingly competitive prices and the big players in the drinks industry (and boy are they protective of their markets) muscled us out. The impact was sufficient to leave our whole business in trouble and we had to sell the pub to clear the decks financially.

Licking our wounds with no interest in returning to corporate life, I was contemplating what we might do next when I took a call from a friend, asking if we knew of any good accountants. She ran a PR agency in the area and was looking for a new solution. The door to the new business opportunity opened before my eyes and we jumped in! For a start my brother and I are both trained accountants, plus we had spent the last 8 years running 3 small businesses – I think we had a good mix of technical grounds and commercial experience to make an accounting practice for small businesses work. Haggards Crowther, as it is now called, is now well-established and looks after over 600 clients.

The entrepreneurial fires have continued to burn brightly, more in me than my brother. He has been keen to keep the accounting practice focused on core products, whereas I wanted to expand into new areas. Thus, whilst I remain heavily involved in Haggards Crowther, I have started work on Start-up venture number 5 – My Bookkeeping Online.

Launching in autumn, this is an online platform designed to help small businesses keep on top of their bookkeeping. From the outset, it has been really important to me that owners of the smallest businesses with no bookkeeping knowledge can use it…and designing it accordingly has been a challenge! It is under development as I write and it is coming together well.

Watch this space as I’ll be blogging and tweeting about the progress.

Other than that, this blog is going to be about small business. No doubt my focus will head off in many tangents in the coming weeks and months, but the primary purpose is to talk about small businesses that are starting up, help with some broad advice and talk about the issues small business owners face in specific industries. Please forgive the occasional rant too!

Tim

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