Keeping accounts for a business is important and needs to be done right. If you decide to work for yourself and begin trading as a sole trader, which means you are classed as self-employed, you will need to set up your accounts to record your income and expenses. Being clear on what is required early in the process will make starting your business journey much simpler.
A sole trader is not a legally separate entity from their business, so a separate business bank account is not a legal requirement. However, there are definite advantages to keeping your business and personal finances separate. Having a business account means being able to use a ‘trading as’ to make your business look professional, rather than using your own name. Being able to easily identify business income and expenditure makes it easier to file your self-assessment tax return.
As a sole trader it is best to set aside money for tax each year, which is recorded by your Self-Assessment. So, you will need to be aware of income tax thresholds and the National Insurance Contributions you will be required to pay. Personal tax bands, the basic, the higher and upper rate usually change in the budget each year. Checking with Spectrum Accountancy Solutions at the time you start in self-employment will tell you what to expect for that year. Sole traders also pay Class 2 and Class 4 NICs. Class 2 NICs are payable directly to HMRC, while Class 4 NICs are payable through Self-Assessment. Rates can again vary each year, so talk to Spectrum for the latest advice. You may also need to consider payments on account, which are advance payments of Income Tax and Class 4 NICs that some have to pay for a future tax year.
If your turnover exceeds the VAT threshold within the tax year then it will need to register for VAT. The VAT threshold for the tax year 2018/19 is £85,000. VAT can be a difficult area for the self-employed and getting advice on whether to register at the start of your business, and what some of the other options such as the flat rate scheme are. Please talk to Spectrum and we will be happy to guide you to the best solution for you.
There are many other things to consider and in a short blog we can’t hope to cover all the areas that you need to consider when making your business finances work for you. However, being unclear on what you can claim as business expenses is one of the main areas of confusion. It is worth looking at one of the cloud accounting packages available, Spectrum working primarily with Xero and Receipt Bank, to help you get used to working regularly on your accounts.
Talking to Spectrum Accountancy Solutions at an early stage of your planning can save you a lot of time, confusion and expense, as well as creating a key business relationship and source of guidance and advice. Get in touch and we will be pleased to help you start your self-employment journey.
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This post was written by Daisy Vowles