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Bookkeeping and Financial Control
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Keeping proper records, particularly where money is concerned, is vital for working out how much you have earned and how much you have spent during the course of the tax year.
It also helps you work out how profitable your business has become.
Without proper records, you could end up paying the wrong amount of tax - either not enough, which incurs penalties, or too much, which damages your business.
Record keeping is a legal requirement, this information is vital when it comes to filling out your tax returns. You are responsible for any entries made and if any queries are raised, you will need to refer back to your records.
What kind of records should be kept?
- If you purchase anything for your business, keep the receipt so that you can deduct it from your gross income.
- If you have issued an invoice, keep a copy.
- Bank Statements and Building Society books are vital, especially if you don't have a seperate business account. You should be able to show clearly what's personal and what's business.
- If you deal in cash, you will need till receipts and a record book of some description to keep track of it all.
- Also, think about property - if you are using part of your home for business then you should keep copies of the heating bills so that you can work out the amount spent in relation to your business.
- You should keep records for at least 5 years, to refer back to if a query is raised. They can also be useful to calculate long term profit and to keep track of spending.
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What type of business are you running?
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Sole Trader - This means that you are an individual who is self employed. You will pay income tax through the Self Assessment system, as well as Class 2 and Class 4 National Insurance - and VAT if you reach the registration threshold.
Partnership - If there are two or more people in your business, you might want to consider a formal deed of partnership. A solicitor will help you with this. Each partner pays income tax, through the Self Assessment system, as well as Class 2 and Class 4 National Insurance - and VAT if you reach the registration threshold.
Limited Company - You can use a company registration agent to buy a company 'off the shelf' or you can create your own and register it at Companies House.
Limited companies should display their full corporate name outside the business premises, and registration details must appear on the stationery. Company directors have certain obligations. They need to file statutory documents, such as accounts and annual returns. There's also Corporation Tax to think about, which is charged on company profits.
Company directors are employees of the company, so there are National Insurance and PAYE obligations. Even though a company director is an employee, they still need to register for Self Assessment.
Franchise - Running a franchise means you are making a contract with a franchiser. It can be very complicated, so you should always get legal advice.
Trading under a different name - You don't have to use your own name in business. however, you must always display your correct name and address at the business premises and on your stationery. |
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Companies House
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All limited companies in the UK are registered at Companies House, an Executive Agency of the Department of Trade and Industry. There are more than 2 million limited companies registered in Great Britain, and more than 300,000 new companies are incorporated each year.
Every company must prepare annual accounts that report on the performance and activities of the company during the year. All companies must send their accounts to Companies House on time.
If accounts are delivered late, there is an automatic civil penalty in the range of £100 to £1,000 for a private limited company and £500 to £5,000 for a public limited company.
The directors are personally responsible for the delivery of accounts to Companies House. They are liable to prosecution in the Magistrates' court if the accounts are delivered late or not at all. A conviction would mean a criminal record and usually a fine of up to £5,000. Persistent failure to deliver accounts or other documents on time could mean a daily default fine of up to £500. It could also result in the disqualification of those concerned as company directors. |
The Construction Industry
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Construction is a broad term. It covers almost anything done to permanent or temporary buildings, including alteration, decoration, repair or demolition.
Within the construction industry you might be a contractor or a sub-contractor - or even both. To simplify the levels/definitions/situations, the Revenue & Customs set up The Construction Industry Scheme (CIS) to make sure everyone pays the right amount of tax. Contractors hire and pay subcontractors according to the rules of the scheme, and subcontractors need special tax certificates or registration cards to get paid. For example, a subcontractor using a registration card automatically has a certain amount of tax deducted from their pay, which then goes toward their final tax bill at the end of the year.
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Employing other people
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If you are going to employ other people, then it helps to get everything sorted out well in advance.
As an employer, you need to think about your employees' Tax and National Insurance contributions, which will be coming out of their wages. You will also be paying employers' National Insurance contributions on top of theirs. And, there are legal issues of employees' rights, working hours and the National Minimum Wage.
You may also, depending on your employees' circumstances,
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deduct Student Loan Deductions and Stakeholder Pension contributions each pay day.
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Make payments of Tax Credits, or
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make statutory payments, such as Statutory Sick Pay, Maternity Pay, Adoption Pay or even Paternity Pay.
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| VAT
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Value Added Tax (VAT) is a tax on certain goods and services supplied in the UK. You only have to register for VAT when your 'taxable turnover' is more than *£60,0000. However, you always need to check to see if this threshold changes in the Budget.
The VAT you charge is known as the output tax. There is also input tax, which is the VAT you pay on goods and services purchased for your business. It's the difference between the two (output tax minus input tax) that you pay to the Revenue & Customs. They normally collect it four times a year. However, if you have paid more VAT than you have charged, you will be due a refund. It can be an advantage to be VAT registered even if you haven't reached the registration threshold. For example, if your business would regularly get a repayment of VAT or the majority of your customers are VAT registered, then it's a good idea to be registered. However, you must remember that registration is compulsory when your 'taxable turnover' is more than the current threshold.
*This figure was accurate at the time this webpage was created, 23/11/05. |
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Importing & Exporting
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What is an import? - You import when you bring goods into the UK from outside the EC, for whatever reason.
What is an export? - You export when you send goods from the UK to outside the EC, for whatever reason.
Imports and exports, are subject to various UK laws and EC Regulations. You must abide by these "control" measures, so it is a good idea to know what you are getting involved with. When mistakes happen, Revenue & Customs can under the terms of the laws and regulations impose various penalties against you, or even seize your goods. |
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