Accounting and bookkeeping for small to medium sized business

A better way to delve into this topic is to answer eight questions that are often on an entrepreneur’s mind:

1. What’s the difference between Accounting and Bookkeeping?

Bookkeeping is the work of keeping transactional records such as an invoice issued to a client, or a payment you have made to a vendor. In this process, you collect, organise and record the financial information in chronological order on a daily basis. Usually, you input the information in an accounting software like Xero. At the end of your financial year, your bookkeeping efforts should result in a ‘trial balance’ which you will hand over to an Accountant like us.

Accounting is the work of analysing your financial transactions following a set of principles and requirements. At a result, you know your depreciation, costs of operations, profit margin – information that can help you to make an informed business decision. In addition, you get financial statements and tax returns prepared for you.

It is fairly safe to say that both functions need each other. A successful partnership between bookkeeping and accounting will ensure the long-term financial health of your small to medium sized company. At TaxAgility, we offer bookkeeping as well as accounting services – we give a free and no-obligation first meeting so you can choose the services that best suit your present needs.

2. Do you need a Bookkeeper?

Almost certainly yes when your business gets to a certain size. Let us list a few daily tasks associating with bookkeeping: recording invoices received and sent out accurately, reconciling back statements and posting banking transactions, paying suppliers and chasing past due invoices, ensuring the staff are paid on time and accurately, making VAT, PAYE/PRSI calculations and ensuring that these are paid to HMRC on-time. These tasks clearly require somebody’s time. Our bookkeeping team can help you in this area.

If you just started your business, there’s no doubt that you can manage these requirements up to a point with the help of software. However, you will still need an Accountant’s assistance to complete your end of year accounts. An early chat regarding what’s required may save some frustration when you come to complete year-end accounts.

3. When do I have to start keeping records and what tax deadlines will I need to know about?

The specific considerations regarding VAT, Corporation Tax, PAYE, PRSI are covered below. The main consideration in or around the launch of your business is getting registered for each of the Tax gateways that you will need to pay these taxes through. If you are setting a limited company, you need to register with Companies House as this is the entity that will be paying these obligations. At least one Bank Account in the company’s name will need to be established too. In essence, your record-keeping starts the moment you set up your company.

Early registration for VAT and establishing a company Bank Account will allow you to claim back any VAT on expenses that you incur and most businesses go through a significant period when the VAT they pay on expenses exceeds the VAT charged on sales. The former ‘input’ VAT can be reclaimed and the latter ‘output’ VAT had to be paid to HMRC, the two are netted on the quarterly VAT form that must be submitted and paid on the 7th day plus a month after the quarterly VAT period.

Talk to us with regards to your VAT questions. We have a suit of VAT Services designed to suit you. You can also visit our VAT for Small Business page to learn about the workings of VAT.

4. Do I need to keep my books using a software package like Xero, Quickbooks, etc?

There are many good benefits to use software such as Xero, Quickbooks, or Free Agent. They tend to be cheap to run on a monthly basis and are quite intuitive. Another big advantage is they are on the cloud, meaning you can access your accounts from wherever an internet connection is available. This means you can review your books and process transactions from almost anywhere.

One word of advice is to set up your charts of accounts accurately at the outset and think through the categories of income and expenditure. Being prepared will save you time and headache in the long run. Talk to us today and we can advise you.

5. In what form should I keep my records, receipts, bank statements, invoices, etc?

There was a time in the past when you were required to keep all paperwork, bills and receipts till year end. As more and more transactions now take place online, you can set-up a filing system in your email box, or a file directory on your laptop to cover expense receipts emailed to you and the invoices you create.

The main source of information to post transactions for should be the business bank account. Keeping distinctive bank accounts for personal and business expenses is highly advised. Most online banking systems will allow for information to be downloaded from there directly to your Accounting system.

6. How should you handle year-end accounts?

There are many clear benefits of running your business as a limited company. One of the legal privileges is you, the owner of the company, or the shareholders, are not personally liable for any financial losses made by your limited company. Running a limited company requires you to keep financial records and do yearly Financial Statements.

The Directors of the company need to sign off formally on the accounts, with their signature captured to certify that they have been prepared within the requirements of the Companies Law 2006. As a sidebar point, in almost all circumstances the business owner will be a Director of the company. Keeping orderly accounting records and filing accurate financial accounts and tax returns are surprisingly not the only legal requirements imposed on Directors by taking that title within the business – the Accounting regulatory body ACCA provide a very comprehensive guide to what the law expects of Directors in 2016.

A partnership or a sole trader does not have to publicly file their accounts as Companies House requirements do not apply to them. They may have higher liabilities in the case of a legal dispute as a result of not having limited liability. It’s highly recommended that such individuals take out Professional Indemnity Insurance. It is still necessary to prepare Annual Accounts though in order to calculate the amount of Income Tax that Sole Traders or Partners have to declare in their own Tax Returns. The time of the preparation of Accounts within a Partnership is often governed by the Partnership Agreement, a contract drawn up to agree the responsibilities and rights of the various Partners.

We have a team of dedicated accountants who can help you in your year-end accounts. Call us at 020 8108 0090 to arrange a free no-obligation first consultation.

7. Are you exempt from an audit?

Companies must have their accounts audited by a registered Auditor unless they fall within a category of company that HMRC defines as a Small Company i.e. if it has at least 2 of the following:

• An annual turnover of no more than £6.5 million
• Assets worth no more than £3.26 million
• 50 or fewer employees on average

You must include the following statement on the balance sheet of your accounts if you’re using an audit exemption;

For the year ending [your company’s year-end date], the company was entitled to exemption from audit under section 477 of the Companies Act 2006 relating to small companies.
The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476.

The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts.

These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.

Even if your company’s usually exempt from an audit, you must get your accounts audited if shareholders who own at least 10% of shares (by number or value) ask you to. This can be an individual shareholder or a group of shareholders. In this instance, they must make the request in writing and send it to the company’s registered office address.

8. What accounts need to be filed with Companies House?

As a Small Business owner running a limited company, you are required to file your confirmation statement (previously annual return).

If you run a company that is dormant, small or micro-entity, you may be able to send shorter (‘abbreviated’) or simpler accounts in this case. You can check out this on gov.uk.

Alternatively, you can visit our Explaining Limited Liability, Small Business and Dormant page to learn more.

Conclusion

At TaxAgility, we know that, as a small to medium sized business,  understanding the process of bookkeeping and accounting can be overwhelming. This is why we are here to help. We provide Accounting and Bookkeeping functions to small business like yours, along with Payroll, Tax, VAT, and Management consultancy services.