Accounting FAQ's

As a limited company owner, you are expected to send accounts to Companies House within 9 months of your financial year end, and pay any corporation tax to the HMRC.

You must deliver the corporation tax (submit) to the HMRC within 12 months of your company year end.

Any expenses that relate to the activity your business is involved in are allowed to be included in your company accounts.

However there are some expenses that relate to employees and director’s expenses that are also allowable.

Head over to our resources page to download our expenses guide.

Corporation tax is expected to increase to 25% in 2023 in line with the 2021 Budget announcements, for businesses with taxable profits above £250,000. Businesses between £50,000 – £249,999 will have a corporation tax rate between 19% and 25%.

We would always recommend that you use a cloud accounting package like Xero, and it’s receipt capture software Hubdoc because it’s accessible anywhere with an internet connection – even on your phone!

Using the Hubdoc app on your smartphone, you can photograph your receipts and it will put them into Xero for you along with a copy of the image, so it’s easy to refer to when you need to find a receipt! No more paper receipts being stored for years.

We’ve got you!

Here’s our blog – 7 great bookkeeping habits for small business owners.

Whilst you’re here, we’ve also got another blog with tips to avoid when bookkeeping!

Ideally you should complete your bookkeeping no less than monthly, but we prefer to do it for our clients on a weekly basis at the very least.

For the majority of our clients, we do this daily to ensure whenever they need information, they have it at their fingertips. No one likes waiting for key information!

The HMRC require business owners to keep records of their income and expenditure, including copies of your receipts for at least 5 years after the financial year has ended. This is so that if they need to enquire or investigate your finances, they will still be able to see the documents to back up the information you’ve submitted.

Major headache, we know! Up until the invention of online accounting, these needed to be kept as hard copies which would take up considerable space inside your business or home. Now the HMRC are happy with electronic copies which will only take up space on your hard drive or cloud storage solution space.

No!

Using cloud accounting software, such as Xero, means that modern bookkeepers can manage your business finances in real-time from their own office, rather than you having to wait for them to go into your office.

They can access your finance information from their own office and keep your books accurate and up-to-date at all times, which in turn helps you make better business decisions, and your bookkeeper can identify and resolve any issues as soon as they arise.

UTR stands for unique taxpayer reference. It is a number that the HMRC assigns to each taxpayer when they register to pay taxes, either as a self employed person or as a business.

A UTR number is 10 digit number and is sometimes referred to as a tax reference number.

CIS needs to be reported to the HMRC by the 22nd of the month (19th if you pay via the post).

CIS should be paid to the HMRC by the 22nd of the month following the submission of your CIS return, unless you have a quarterly pay arrangement.

To register as a CIS contractor, you must complete an online HMRC form to register as an employer.

One you’re registered, you can then verify your subcontractors and begin paying them.

We can help by registering your business as an employer, and take that burden away!

It’s worth noting here that registering as a subcontractor is voluntary, but the tax deductions are lower if you do, so we recommend that businesses do register as a CIS subcontractor.

To register as a CIS subcontractor:

Individuals – apply using form CIS 301
Partnerships – apply using form CIS 304
Limited companies – apply using form CIS 305

If you already have a government gateway ID which you use to log on to other HMRC services you can go to add services and it will allow you to apply as a subcontractor.

We can help by registering your business as a subcontractor, and take that burden away!

Domestic reverse charge is new VAT legislation brought in for the construction industry from 1st March 2021.

You can also head over to our article here about the VAT reverse charge for construction where we go into more detail.

If you need VAT support, check out our VAT service page.

A confirmation statement should be filed once a year (annually) and will coincide with the date that the company was formed with companies house.

Companies house charge £13 a year for a confirmation statement to be filed. This fee just covers the confirmation statement itself, and not the cost of someone other than you completing it.

A company secretarial service will often charge a fee to manage this for you, including the fee levied by companies house.

All companies are required by law to keep and maintain up-to-date registers of key details.

These include:

• a register of members (shareholders),
• a register of directors,
• a register of charges (for things like mortgages or finance agreements that require a guarantee),
• a register of persons with significant control (PSC register).

The details in these registers include (but are not limited to) names, addresses, dates of appointment and resignation for company directors. The details for members (shareholders) include the number and type of shares held.

Failure to keep the registers up-to-date can incur a penalty of up to £5,000.

A company may choose to keep its directors’ home addresses private and to record a service address for them. If so, it will need to keep an additional register showing the directors’ residential addresses, which cannot be seen by the general public.

This doesn’t mean a list of fees payable to companies house.

When a company gives security for a loan, either the lender or borrower should notify Companies House within 21 days by filling in the appropriate form and paying the fee.

Without registration the charge within 21 days, the charge will be void – that is, the loan will still be repayable but the security given will not be valid.

This does not apply to property acquired which is subject to a charge.

This depends on where your business is at in it’s lifecycle, what sector it’s in, and the goals that you want to set for the business.

Typically management accounts will include:

• Key performance indicators (KPIs)
• Profit & loss report
• Balance Sheet
• Cash flow

Whilst these are the usual things to include in a management report, it can be customised to what you want to see and how you want to see it.

We build custom reports in Xero for some of our clients, that reflects the information they want and need to see.

Xero has a whole catalogue of reports available to business owners, with management accounts being one of them.

To get to them, simply click ‘Accounting’, and then ‘Reports‘.

We prefer a more custom approach for our clients that makes it easier to understand the figures. This includes key metrics, like gross profit percentage, tracking categories, and custom groupings.

Reading management accounts can be complicated, and without proper guidance, they simply join the pile of paperwork on your desk.

One tip we often say is to think beyond the accounting details.

Ask yourself – where does my business make its money? Is it a particular service or good sold? If so, are you splitting this out so you can track its activity each month?

How are you monitoring the performance of your team? Some measure activity levels, whilst others may monitor output.

Aim to identify no more than 5 key performance indicators (KPIs) that you would like to monitor. They don’t need to be all financial. Think about other parts of the business too, such as the time taken to pick an item of stock, or how quickly a service can be turned around from the job coming in, to being finished for your customers. 

Payroll real time information (RTI) should be submitted to the HMRC no later than the 19th of the following month after payroll has been run.

Payment of your tax liabilities under payroll need to reach the HMRC by the 22nd of the following month (3 days after the RTI deadline), unless you pay quarterly.

No! You can transfer payroll providers at any point during the year. Your previous payroll provider just needs to provide us with your payroll records, which will include the amounts paid for the year to date. 

Auto-enrolment is a government initiative that requires all employers (even those who just have one member of staff) to automatically enrol certain staff into a pension scheme and make contributions towards it. Usually the staff member will also have to make contributions to the pension scheme which the government may top up with tax relief.

Employers are required to contribute a minimum of 3% of qualifying earnings, with the employee to contribute (if they opt in) 5%, meaning a total of 8% potentially contributed each month. All though employers or employees may want to contribute more than the minimum required, which is allowed too. 

The amount you pay depends on how much you earn.

Every taxpayer in the UK receives a tax-free personal allowance each year. For the 2021-22 tax year (6th April 2021 –  5th April 2022), your employees will receive a tax free earnings allowance of £12,570.

This personal allowance may change depending on the circumstances of the employee, including whether they are transferring some of their personal allowance through to their partner via the marriage allowance, or if they have more than 1 employer.

The standard rates of PAYE are 20%, 40% and 45%, and national insurance is 12% for employees and 13.8% for employers, with an additional rate of 2% for employees with the highest earnings. 

The deadlines for self assessment that you should be aware of are:

• 5 October – deadline to register for self assessment for the first time.
• 31 October – paper return deadline
• 31 January – online filing of tax return deadline
• 31 January – tax payment deadline (1)

(1) If you’ve already made payments on account, you may have already partially paid towards this bill.

You can pay your tax bill using the following methods:

• Online or telephone banking
• CHAPS or BACS
• Debit card online (by credit card is no longer available)
• Direct debit
• Cheque
• At your bank or building society

Self assessment tax rates are the same as being employed, so 20%, 40% and 45%.

Where self assessment differs is with national insurance. When self employed, you typically pay national insurance at two different rates.

• Class 2 – £3.05 per week (frozen in the Budget 2021)
• Class 4 – 9% on profits between £9,501 and £50,000 and 2% on profits over £50,000 (profits between £9,568 and £50,270 from 6th April 2021)

A payments on account is advance payments towards your self assessment tax bill (including Class 4 National Insurance if you’re self-employed).

You are required to make two payments on account each year if your self assessment tax bill was more than £1,000 in the previous tax year.

If you’ve already paid more than 80% of all the tax you owe, for example through your tax code or because your bank has already deducted interest on your savings, then you won’t be asked to make payments on account.

Each payment is half your previous year’s tax bill. This is how the HMRC estimate what your payments on account should be. Payments are due by midnight on 31 January and 31 July.

There are a few ways to minimise how much tax you pay personally as a business owner. 

If you don’t have any employees, you’ll want to make sure you don’t pay yourself too much and then have your company end up paying employers national insurance. If you have employees, you can claim employers allowance (£4,000 p/a) and reduce the amount of employers national insurance you pay, meaning you can take a slightly higher salary. 

For the 2021/22 tax year, if you don’t have any employees we recommend a salary of no more than £8,788 per annum, with the rest of your remuneration paid in dividends which are taxed at a much lower rate.

As a shareholder, you will also receive a £2,000 tax free dividend allowance on top of your £12,570 tax free personal allowance.

If you have employees, then you can still make tax savings by taking a slightly higher salary (which in turn will reduce the amount of corporation tax your business pays), and dividends.

Paying pension contributions is tax-efficient because you’ll reduce your company’s taxable profits and therefore save your business corporation tax.

Paying through your limited company directly into your pension is usually more tax-efficient than making the contribution from your own funds.

How much tax can you save?

For the 2021/22 and the 2020/21 tax years, the Corporation Tax rate is 19%, so for every £10 your company earns as profit, you’ll pay Corporation Tax of £1.90, reducing the amount you can take from your company as a dividend to £8.10.

Extend that to £100,000 of profits, the corporation tax would be £19,000, leaving you with £81,000 in dividends – that’s quite a big tax bill isn’t it!

Simply paying (for example) £100 into an employee’s pension fund effectively costs the company only £81 due to the corporation tax saving and, eventually the £100 investment can grow within the pension fund.

As pension schemes are very complex, we strongly recommend you take specialist advice from an independent financial advisor before making any contributions into an employee pension scheme (including your own).

Dividends are taxed at 7.5%, 32.5% and 38.1%.

The rate you pay depends on your total income for tax, and aligns with the income tax thresholds.

The first £2,000 of dividends – tax free

£0 – £12,570 – tax free

£12,571 – £50,270 – 7.5%

£50,271 – £150,000 – 32.5%

£150,001 and above – 38.1%

The standard VAT rate is 20%, which covers most services and goods sold in the UK.

However there are some goods and services that attract VAT at different rates, including 0%, 5% and exempt for VAT.

In the 2021 budget, the 5% hospitality VAT rate will be extended to September 2021, and then will increase to 12.5% for 6 months before returning to 20% from April 2022.

The threshold for registering for VAT is £85,000.

If your VAT-able sales (sales that would normally attract VAT and are not exempt) are more than £85,000 in a 12 month period, then you are required to register with the HMRC as soon as you become aware.

BREXIT has brought in some further VAT thresholds that may also affect your business.

You’re required to register for VAT or join a VAT accounting scheme from 1st January 2021 if:

• Your sales to Northern Ireland via distance selling rules are more than £70,000.
• You are importing goods into Northern Ireland from the EU of more than £85,000.

If you’re joining a VAT scheme, you should be aware of the relevant thresholds for those schemes too:

• Flat Rate Scheme – £150,000 of sales or less.
• Cash Accounting Scheme – £1.35 million of sales or less.
• Annual Accounting Scheme – £1.35 million of sales or less.

VAT returns must be filed one month and 7 days after the period end. Payment must also be made by this deadline too.

If you are signed up to pay your VAT by direct debit, you are given a few more days to pay (usually around the 10th instead of the 7th).

Sometimes it can be beneficial to your business to register for VAT before you have to – known as voluntary registration.

Some of the benefits of doing this include:

• Bigger business appearance – You’ll have the appearance of a bigger business if you’re charging VAT, as the current limit for compulsory registration is £85,000 on VATable turnover (2020/21).

• Recover VAT on your startup costs – If you sell to VAT registered businesses they can reclaim the VAT from HMRC so your selling price is still competitive and you will be able to recover the VAT on your costs, including any VAT on those costs that you incurred starting up (pre-registration).

• Better records – Maintaining up to date records will provide better information for running your business.

• If you sell zero rated items (such as children’s clothing) you will definitely be better off as you’ll be able to reclaim all the VAT on your business expenses.

• Increased short term cash flow – You’re likely to receive repayments because your VATable sales are lower than your VATable costs. This may be because building up stock levels or because your sales are below the standard rate of 20% at either the reduced rate of 5% or zero rate 0%.

VAT is a little more complex since the UK left the EU and the customs union.

We’ve written a blog all about it – click here to read it!

VAT is a constantly changing tax that involves vast amounts of knowledge to stay compliant.

An accountant is required to undertake regular training to ensure their knowledge is current and up to date, which is to make sure they are competent in their role as your adviser.

An accountant can help you by dealing with the complexities of VAT, along with dealing with the HMRC so you don’t have to. They’ll also help you keep your business compliant and take the administrative burden of VAT off your shoulders.

The easiest way is to register online, using your business tax account. Visit the HMRC’s VAT registration page to get started. Your accountant can also register your business for VAT and deal with HMRC for you.

Some businesses can’t register online and will need to use a VAT1 form by post. This may also apply if you’re:

• applying for a registration exemption.
• joining the Agricultural Flat Rate Scheme – VAT98 form.
• using separate VAT numbers to register a group of businesses.
• an EU business distance selling into Northern Ireland.
• disposing of assets and you have claimed Directive refunds on them.

The most important things to consider are:

The date you register for VAT

How your prices will be affected once you register for VAT – if you register from day 1 then your prices won’t need to change due to VAT registration, but if you choose later down the line, will your customers accept the 20% increase?

What VAT scheme will you use?

Head over to our VAT scheme page here to learn more about finding the right VAT scheme.

Each VAT scheme has its advantages and disadvantages. We’ve summarised them here.

Standard VAT (Accrual)

✅  – Claim back VAT on purchases before you pay for them.

❌  – Pay VAT on your sales before your customers have paid you.

Standard VAT (Cash)

✅  – Pay VAT to the HMRC only once your customer has paid you.

❌  – Can’t claim back VAT on purchases until you’ve paid for them.

Flat Rate scheme

✅  – Record keeping is simpler & There is a 1% discount on your industry percentage if you register for flat rate VAT in your first year of VAT registration.​

❌  – Can’t claim back VAT on expenses unless they are of a capital nature over £2,000 plus VAT.

Annual accounting scheme

✅  – Regular monthly payments on account.

❌  – No incentive to maintain good up to date records, so you may not know whether your business is making a profit or not before it’s too late.

Retail and margin schemes

✅  – Simplified VAT reporting & if you sell an item for less than you paid for it, you will not have any VAT to account for on the sale.

❌. – Restrictions on goods available to sell under this scheme.

The flat rate VAT scheme is suited to businesses that have very little in recoverable VAT on their expenses, but not so little that they would qualify for the limited trader scheme.

Once you know how to complete the online form, accounting for flat rate VAT is a fairly straightforward process since filling in a flat rate VAT return is usually easier than completing a standard rate VAT return.

You will only need to tell HMRC how much you have charged in VAT in total, and there is no need to reconcile your receipts (although we would always recommend that you do keep your records tidy as this makes end of year reporting neat and tidy!)

There is also the opportunity to earn money from the flat rate scheme. If you are a new business, you can benefit from an extra 1% discount in your first year of trading.

The downside to the flat rate scheme is that businesses cannot reclaim VAT on their expenses unless they are capital in nature (equipment, machinery, computers etc) and have a value of £2,000 + VAT or more.

There are six VAT schemes available to businesses, however not all are available or applicable to every business registered for VAT.

The domestic reverse charge VAT scheme is only applicable for construction and trade businesses registered for CIS.

Other restrictions around whether you can join a VAT scheme depend on turnover or industry.