Entering the world of accounting can be a scary thing – especially when you don’t know your LTD from your LLP.
That’s where our accountants come in.
They work with you to help you to understand the legislation that’s applicable to your business, and to help you become as tax efficient as possible.
Our qualified accountants speak to hundreds of clients every week, and often they get asked the same questions.
To save you time before you chat to us, here are some of those questions answered so you can make a more informed decision regarding your finances.
Q: Am I better off as a limited company or sole trader?
A: There are a number of differences between trading as a limited company and trading as a sole trader. However, the general rule of thumb is that if your pre-tax profit amounts to over £25K you would likely be more tax efficient operating as a limited company. Being a limited company also gives protection of personal assets. If your pre-tax profit is under this amount, you should consider operating as a sole trader instead.
Q: How much is my tax?
A: The tax you pay will depend on what your type of business you own, what your annual turnover is and what legislation applies to you. This is very specific to each company, and we won’t know how much your tax will amount to until we have prepared your accounts.
Q: What expenses can I claim?
A: Essentially you can claim anything that is relevant to your business, nothing personal. See an extensive list of what you can and can’t claim here.
Q: What is bookkeeping?
A: Bookkeeping is the process of recording your business’ transactions. This means keeping hold of your receipts and monitoring exactly what expenses you have as a business, as well as what earnings are made. You can manage your bookkeeping either with a spreadsheet or, more commonly, with an accounting software.
Q: What is my UTR and where can I find it?
A: A UTR is your Unique Taxpayer Reference. This is a 10 digit number that is unique to you or your business and which you will receive when you register as a sole trader or when you set up a limited company. You’ll need your UTR when completing a Self Assessment return.
You may also need it when appointing an accountant – or in any instance when you’re communicating with HMRC. Your UTR number can be found on any paper correspondence you have had with HMRC. If you have lost your UTR number you should contact HMRC on 0300 200 3310.
Q: Do I need a business bank account and how do I set one up?
A: We would advise all businesses to use a business account where possible as this helps keep your company’s finances separate from your personal finances. A business bank account may also have different benefits to a savings account, which will vary from bank to bank. You will need to contact a bank to set it up.
Q: Which bank should I use?
A: We wouldn’t advise on this. Who you choose depends on whether your company has enough credit worthiness to open a mainstream bank account. If this isn’t the case, it’s better to look to smaller online banks. Different banks have their own benefits, so who you choose largely depends on what rates your company is willing to pay for these benefits.
Q: What do I need to include on a sales invoice?
A: If your business is not VAT registered you only need to include your company name and address, the date, detail of item or service and the total amount due. If you are VAT registered you will include all of these as well as your VAT number and the net amount, the VAT and the total of the invoice.
Q: Can my tax rates be reduced?
A: This is a big no, as HMRC set rates for everyone/business so that paying tax is fair. Your profits can be reduced though ways of tax efficiency, but this is limited to the laws and guidelines set out by HMRC.
Q: Can I buy a company car?
A: Yes is the easy answer, however, this does give rise to further tax and national insurance liabilities from both the company and the employee. In most cases the easiest way to avoid these extra charges is to buy a car personally (as the director) and claim any business mileage through the company at 45p per mile. This is limited to 10,000 miles, when it decreases to 25p per mile.
Q: What is depreciation?
A: This is an amount of your capital assets that is written down each year. As capital assets last longer than one year, they are capitalised, and Included in your balance sheet. Then, each year, a portion of this cost is written down through the profit and loss account.
Some assets can be fully claimed in the year of purchase, if they qualify. These can be claimed as an allowance to reduce your tax at the full cost you bought it for in the year of purchase, so the depreciation written down is not allowable for tax purposes.
Q: How long will it take you to complete my accounts?
A: Once you’ve sent your bookkeeping records to us we will be able to begin work on your accounts. The turnaround time on this depends on what time of year it is and how far away your deadline is, although our average turnaround time is two weeks. Provided you’ve sent us your accounts with plenty of time to spare, they will be submitted by us before your deadline.
Not so frequently asked questions…
While the above are the most common questions we get asked, there are some that only happen once in a blue moon, but in case they apply to you too here they are!
Q: Please find attached my bookkeeping records, have you finished my accounts yet?
A: We require your bookkeeping records in order to complete your accounts, so you’ll have to send them over before we’re able to work on them.
Q: I have a prosthetic leg, can I claim this for tax?
A: No, HMRC won’t allow this for tax purpose as it has a personal use.
Q: As a stripper can I claim pole dancing lessons through my accounts?
A: Yes, HMRC allow you to claim training costs if it’s relevant to your business and helps you increase turnover.
Didn’t find what you were looking for? The team at The Accountancy Partnership can help. We advise clients every day, helping them become more tax efficient and avoid penalties. Get your instant online quote here.
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About The Author
MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.