STARTING UP IN BUSINESS

BUSINESS RECORDS

1. What records do I have to keep?

2. What happens if I don’t keep proper records?

3. How long should the records be retained?

4. What about expenses paid in cash?

5. When will my first accounts have to be prepared?

What records do I have to keep?

cash book, appropriate for your business, and all documents relating to income and expenses such as till rolls (if applicable) sales and purchase invoices, bank and credit card statements, cheque stubs, paying in books etc.

We will be happy to provide basic book keeping training on both manual and computerised (Sage) accounting systems.

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What happens if I don’t keep proper records?

Apart from the problem of assessing your business results, you can be fined up to £3,000 by the Inland Revenue.

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How long should the records be retained?

For six years, under current Inland Revenue requirements.

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What about expenses paid in cash?

If you cannot obtain a receipt, make a note of the expense on a “petty cash” slip and keep it with your other purchase invoices.

This will ensure that the expense is not overlooked when we come to prepare your accounts.

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When will my first accounts have to be prepared?

Normally a year after commencement of business but it can be advantageous, for tax reasons, to prepare accounts for a shorter period ending on 31 March. We will discuss and advise on this.

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TAX/PAYE/VAT MATTERS

1. How and when do I tell the Inland Revenue about my new business?

2. Is all my business expenditure tax deductible?

3. How is my tax bill calculated?

4. When will my first tax bill be payable?

5. What if the business makes a loss in its first year or two?

6. Do I have to pay National Insurance Contributions?

7. What if I want to employ someone?

8. Will I have to register for VAT?

TAX/PAYE/VAT MATTERS

How and when do I tell the Inland Revenue about my new business?

There are simple registration forms to fill in but they must be sent to the Inland Revenue within 3 months of business commencement, to avoid a penalty of £100.

Supplies of the forms are held in our office.

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Is all my business expenditure tax deductible?

Not necessarily. It can be roughly broken down into 3 categories:

1. Day to day running costs, which are fully tax deductible.

2. “Capital” expenditure on working assets, such as vehicles, machinery, office equipment etc, for which tax relief (called Capital Allowances) is spread over four years or so.

3. “Capital” expenditure on permanent assets, such as buildings, land, goodwill etc., for which no tax allowances are generally claimable until you come to sell up (and enter the realms of Capital Gains Tax).

These rules can be confusing but we will be happy to clarify them in more detail.

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How is my tax bill calculated?

 It is based on accounting profit, i.e. business income less business expenses, not on how much you actually pay yourself (called “personal drawings” for self-employed people).

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When will my first tax bill be payable?

 This depends on when you start up in business. But, as a very general guide, nothing will be payable until the 31 January following the end of your first trading year.

So, for example, if you start up in June 2002, there will be no business tax to pay until 31 January 2004. 

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What if the business makes a loss in its first year or two?

The loss can often be used to claim refunds of tax paid in the 3 years prior to commencement of business.   

Needless to say, we will make sure that you get any such available refunds! 

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Do I have to pay National Insurance Contributions?

Yes, self-employed people pay two types of NIC:

1. Class 2, currently at the rate of £2.00 per week, which preserves full state pension and benefits entitlements

2. Class 4, which is based on profit and calculated as part of your annual tax bill.

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What if I want to employ someone?

 To comply with Inland Revenue requirements, you would have to observe the statutory minimum wage and complete the necessary paperwork, regardless of the employee’s age or earnings.

If wages exceed a certain level, you would be responsible (as employer) for the operation of PAYE.

This can be an administrative burden, which you may wish to unload onto our modestly priced Payroll Bureau.

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Will I have to register for VAT?

 There are too many important variable issues to consider in a basic guide such as this.

We can offer expert advice, tailored to particular business operations. 

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