It’s all very well having a great business idea, or having the true grit and determination to make a success of your self-employed business venture, but it’s another thing altogether when you have to sort out your accounts. Our experts at DSR Tax Refunds know how complicated it can get when you have to start crunching all of those numbers, so we have put together this helpful guide exploring your accounting options. Our experts are always on hand to help you with any taxation issues you might be having so call our helpful team on 0330 122 9972.
How can you work out your accounts for HMRC?
Many people use the “cash” and “accruals” forms of accounting to inform HMRC of their finances. Which method you should choose all depends on which method works best for you and the type of business you run.
They work in the following ways:
- Cash: if you use this accounting form, you will record your income when it comes in and the costs and expenses to your business when they go out. This is a simple form of accounting, which usually does away with the need to think about issues like assets or capital expenditure. One thing to note though is consistency. However, you choose to record such items as monies received or expenses paid, make sure you record them the same way each time. And if you make a loss, you just carry it forward to the following tax year to count against future profits (and tax burden). If you plan to use the cash system, make sure that you inform HMRC by ticking the relevant box or they will automatically assume you are using the accruals method.
- Accruals: this accounting system is a little more complex than the cash system. In this system, you will record the money coming in when you raise the invoice for it – even if the money isn’t received by you until later. When you are declaring expenses, you will record them when you actually use the item – not when it was bought and paid for. This way, stock items get treated as assets of the business – the downside of this method is that it can be pretty complicated for a small business.
What records will you need for cash accounting?
Because this is the simpler option, the records you need are pretty simple – you should already be keeping records of your expenses and monies received anyway and you don’t need to worry about how to treat your business assets, unless you are buying expensive items such as vehicles. Any financial costs, such as interest on business loans can be treated as an allowable expense as long as they are under £500 per tax year.
When can’t you use the cash method?
Because it is ideally suited for small and relatively simple businesses, you can’t use it if you make too much profit from your business. If you make more than a certain threshold, you have to use the accruals method of accounting.
If your business structure is more complicated – for example, if one of your business partners is not an individual person but is an organisation or company – then you will also have to use the accrual method.
We know that it can get really complicated when you start a business and you need to know how to start dealing with your finances. That is why our team of tax experts are on hand to take the hassle out of your taxes so you can get on with running your business. Call our team of tax preparation specialists at DSR Tax Refunds on 0330 122 9972 – we’re the tax experts you can trust.