Accounting & taxes by Myriam Melot
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This document provides an overview of business accounting and tax considerations for new business owners. It discusses the differences between being self-employed or setting up a limited company, including tax obligations and record keeping requirements. Key topics covered include business structure options, taxes, registering with relevant authorities, paying yourself, tracking expenses, and whether an accountant is needed. The document aims to help new business owners understand basic accounting concepts and requirements.
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Accounting & taxes by Myriam Melot
- 1. Melot Accounting Limited Bristol Business Mums Start Up Workshop! Accountancy and Taxes
- 2. Overview ❖ Business set up choices.! ❖ Who to tell you’re in business.! ❖ What taxes will you need to pay?! ❖ Do I need a separate business bank account?! ❖ How will I be paid - salary etc?! ❖ What records should I keep and for how long?! ❖ Expenses - what can I claim?! ❖ Do I need an accountant? What would they do for me? Cost?
- 3. Business Set Options ❖ There are two choices of how to set up your business:! 1. Self Employed / Sole Trader! 2. Limited Company! ! ❖ Which set up you suits you best depends on your own circumstances…
- 4. Pros & Cons Self Employed ❖ ❖ Simplest set up if just testing the water.! Business profits are personal money which can be taken at any time.! ❖ The individual and the business are one and the same.! ❖ Only one return to file with HMRC each year.! ❖ Limited Company ❖ Most tax efficiency and flexibility for profits withdrawal.! ❖ Can provide a more professional appearance to clients.! ❖ Some degree of protection as an individual - company is a legal entity.! ❖ More onerous in terms of returns and filing, and less easy to shut down.! ❖ Accountancy is more expensive. Accountancy is much cheaper.
- 5. Who Should You Tell ❖ Companies House! • ❖ If you want to incorporate a Ltd company.! HMRC ! • Both self employed / sole trader, and Ltd once company is incorporated with Companies House.! • To register for VAT if you want /need to.! • To register as an employer if you need to as a Ltd employing yourself, or as sole trader who will need to employ somebody else.! • To register for CIS if working within the construction industry.
- 6. What Taxes Will I Need To Pay? Self Employed Limited Company ❖ VAT if registered.! ❖ VAT if registered.! ❖ PAYE tax & Classes 1 and 1A NI if employing staff (see Ltd co).! ❖ PAYE tax if registered as an employer on salaries over threshold of £9,440 at 20%.! ❖ Income Tax on profits over £9,440 at rate of £20%. Higher rate on profits over £41,450 at 40%.! ❖ ❖ Class 2 National Insurance if profits are likely to be over £5,725 of £2.70 per week.! Class 1 National Insurance Contributions on salaries over threshold of £7,748 at 12%. Then at 2% over £41,444.! ❖ Class 1A National Insurance on salaries over £7,696 at 13.8%.! ❖ Corporation tax on profits of company at 20% (small co rate profits less than £300K).! ❖ Income Tax and Class 4 NI on Director’s income (see Self Employed). ❖ ❖ Class 4 contributions on profits over £7,605 at 9%. Reduced rate on profits over £41,450 of 2%.! Note that you may have to pay 50% upfront for the following year’s tax!!!
- 7. Business Bank Account ❖ Limited Company MUST have a separate bank account!! • ❖ The company is its own legal entity and will have to have a business bank account set up in its name for incoming and outgoing cash.! Self Employed / Sole Trader:! • No legal requirement to have a separate business bank account but this is highly advisable to maintain clear boundaries between business and personal money.! • Can set up a second current account in the interim to keep things simple. Usually this is very simple and can be done almost instantly with online banking.! • Business banking is better for established businesses as there will be specialist managers to assist with business needs.
- 8. How Do I Get Paid? (v.v.v important!) ❖ Limited Company:! • • Note that all employers will need to be providing staff with registered pensions and contributing to these over the next couple of years!! • Dividends on post tax profits of the company.! • ❖ Salary if registered as an employer, once payroll RTI reports filed each month. Advisable to keep up National Insurance years in employment, but not a requirement.! Restrictions on what can be taken in dividends at any given time.! Self Employed / Sole Trader:! • Drawings. ! • Taken whenever required. ! • No restriction on what can be taken other than having the cash available to withdraw.
- 9. What Records Should I Keep? ❖ Sales Invoices.! ❖ Receipts from purchases and expenses.! ❖ Till rolls.! ❖ Payroll records if registered employer.! ❖ P60s and P45s as an employee.! ❖ Records for VAT Returns.! ❖ Banking Records.! ❖ Keep all records for 6 years!
- 10. How To Keep Records - Bookkeeping ❖ Excel Spreadsheets.! ❖ iPhone App for simple income & expense records: Earnest etc.! ❖ Cloud bookkeeping packages: FreeAgent, Xero, Kashflow etc.! ❖ Desktop bookkeeping packages: Sage, Quickbooks etc.! ❖ Hire a Bookkeeper.! ❖ If Ltd Company it’s a requirement to keep financial records up to date - HMRC could ask to review at any time!! ❖ Advisable to keep good records in any case - up to date knowledge of business’ financial health, reduced stress, and less cost in the long run.
- 11. What Costs / Expenses Can I Claim? ❖ Ltd Company = ‘wholly & exclusively’ rule.! ❖ Self Employed/Sole Trader = business % rule.! ❖ Expenses can be claimed for pre-trade costs as far back as 7 years.! ❖ Things to consider are:! • mileage for business travel to unusual locations or meetings: car 45p per mile, bicycle 20p per mile, motorcycle 24p per mile.! • Proportion of car running costs and petrol calculated on % business miles / total miles (self employed only).! • All car or van costs if owed by the business itself (less personal use % for self employed). Ltd would need to restrict any personal use to insignificant in order to avoid company car benefit tax.! • Mobile phone costs (treatment differs for SE and LTD).! • Household costs: mortgage interest, rent, council tax (only SE), gas & electricity, cost of calls only for home telephone.! • Insurance - PI, PL, Employer/ Business possessions or premises insurance in its entirety. ! • Household insurance - only SE can claim a % of this.! • Simple rates options for home use: £4 per week for Directors of Ltd, for SE/ST calculated on hours worked per week.! • Business equipment such as computer, printer, software etc.
- 12. Do I Need An Accountant? ❖ Bookkeeper - personal choice whether to use this service.! ❖ PAYE RTI Returns - HMRC RTI or use bookkeeper/accountant/payroll service. ! ❖ VAT Returns - HMRC online or use bookkeeper/accountant.! ❖ Self Employed / Sole Trader - Self Assessment Return - HMRC online service, or can use an accountant if preferred.! ❖ Limited Company Incorporation - can do online via Companies House, other online services (for a charge) or get an accountant to do it for you along with HMRC Registration.! ❖ Limited Company - Statutory and Abbreviated Accounts, Corporation Tax Return accountancy is strongly advised. Can use the HMRC joint filing service if doing yourself.! ❖ Company Annual Return with Companies House - can do yourself online for £13.! ❖ Costs will vary but can expect to pay around £8 - £15 per hour for bookkeeping, £120 £250 for Self Assessment Returns, and £500 - £1,000 for Ltd Company Returns.
- 13. Questions ???