As a start-up company, you’ll want to do all you can to keep your finances in check and fund your future. Find out how accounting for start-ups works and how an accountant can help.
Understanding your finances is vital if you want to achieve success your new business. It’s important for staying on top of your cashflow, paying your taxes, securing funding and planning for growth.
Accounting can be overwhelming for new business start-ups. Using an accountant to look after your finances can put your business on the road to success secure.
Do start-ups need accountants?
Accountants are often the most trusted advisor. They can assist you in creating your business plan and raising money and also help to choose your business’s structure. There are a variety of options available and accountants can help you choose the one which is the best fit for your needs.
The owners of businesses have many rules to follow and accountants can help. One of the main ones is paying the correct amount of tax in order to be free of penalties. An accountant can help to do this, while also pointing you to tax saving opportunities.
The choice of an accountant who knows the industry you’re operating in can be extremely beneficial. They’ll be able to track your progress and provide advice on ways to increase your financial performance.
Business structure and its impact on your bank accounts
Selecting the best trading structure is essential to take advantage of tax-saving opportunities and ensure that you are protected from the risks that could arise from the beginning of a new venture.
Your primary choices include sole trader or partnership, as well as limited liability partnership or company.
Solo traders are self-employed persons. It is the simplest arrangement to create with only a small amount of documentation. Sole traders need to file self-assessment tax returns and be registered with HMRC.
In the case of a sole trader, both the owner of the business and the business are considered as an entity in law, which means you are responsible for all risk and liability for the company’s liabilities.
The concept of a partner is like the sole trader, but it’s made up of more than one partner. Each partner is taxed separately on their portion of earnings and is responsible for paying income tax as well as National Insurance.
A Limited Liability Partnership (LLP) is taxed in an exact manner as a partnership; however, the partners reduce risks to themselves by limiting their liability to the maximum of their contribution to the LLP. An LLP must also record the accounts at Companies House.
The limited business is legally independent from directors and shareholders, which means that you’re not personally accountable for any losses incurred by the company. Limited companies tend to boost trust among suppliers and customers.
Companies that are limited are required to complete more formalities than sole traders or partnerships. This involves registration in Companies House, filing company accounts, and making payments of Corporation Tax. Limited company directors can earn tax savings by arranging their pay.
Requirements for accounts
Limited businesses must keep annual accounts with Companies House. To do this, they must comply with financial reporting requirements (FRS). For small businesses, there are FR105 and the FR1021a.
For the majority of small-sized businesses, FRS 105 is enough. FRS105 is designed for companies that are micro-entities and opt to follow the micro-entities system. They must satisfy at least two of the following requirements:
- A turnover of not greater than PS632,000
- Balance sheet that is not greater than PS316,000
- Minimum of 10 employees
In certain circumstances, FRS 1021a may be required. It will require more disclosures in accounting statements that FR105 does not, and might be required when a company is applying for financing.
A professional accountant can help with filing your accounts according to the right financial reporting standards.
What advice can accountants provide for business beginnings?
There are a variety of beneficial services accountants can offer to start-ups. This includes:
Business plan
Business plans are documents that outline the goals of your business goals, the potential for market growth financial forecasts, as well as strategies for sales and marketing. It is essential to have a business plan when you are looking to get an investment or loan.
An accountant who is knowledgeable will know the specific information that should be included in the Business plan and how to present it. This can increase your odds of success when you seek the funding you need to start your business.
Bookkeeping
The bookkeeping process is the record-keeping of the financial transactions of businesses. It’s essential because it lets you know the amount of money flowing to your startup company and the amount you’re spending.
Effective bookkeeping allows you to keep track of your cash flow, to ensure you have enough cash to cover things such as stocks, suppliers and tax.
Self-employed people and the majority of directors of limited companies are required to declare their earnings for HM Revenue & Customs (HMRC) on a year-long Self Tax Assessment return. It is possible to lower your tax bill by exempting some business expenses. That means you must keep your bookkeeping in order.
It is possible to perform your bookkeeping but this is a risk as you must be 100% accurate in your data. Inaccurate entries can result in fines from HMRC.
Utilizing the services of an outside Bookkeeping service will save you time and money since it decreases the chance of human error, increases the efficiency of your business and lets you concentrate on expanding your business.
Tax
The kinds and amounts of tax you have to pay are different according to the legal framework. A professional accountant can ensure that you are following the tax laws that are appropriate and make the most of any tax savings opportunities.
Taxation areas that accountants can aid start-ups by providing:
Dividend plan
Although salary is a reward for hard work, shareholders of an organization are entitled to the opportunity to earn a profit from an investment. After the directors have been paid compensation, any funds that are not used up can be used in dividends. They can only be paid out of profits after corporation tax Therefore, you require a reasonable interior management account for deciding whether your business is legally entitled to declare dividends.
Profits that are extracted in the form of dividends could result in tax benefits.
Dividends have to be declared on tax returns, so it’s essential to keep accurate documents of the amount distributed to shareholders. If you do not adhere to the rules, you could be subject to being investigated by HMRC which could result in having to pay fines and penalties.
Dividends must be planned carefully to maximize tax benefits and ensure compliance with rules. An accountant can offer professional assistance on how to go about doing this.
National Insurance
National Insurance (NI) is paid by employers, employees and self-employed individuals.
Your employees are in the category known as ‘classes’, for their National Insurance Contributions (NICs). You must be aware of these classes to figure out the amount you need to pay.
Self-employed individuals, you must be liable for National Insurance if your profits exceed PS6,725 per calendar year. This is regarding the tax year 2022/23.
If your business is just beginning and has employees Sherwin Currid Accountancy can provide you with the Employment Law service to make sure you comply with NIC regulations.
An accountant can assist self-employed people to know their NI obligations and offer a bookkeeping service that allows you to monitor your cash flow to ensure that you have enough money to cover your expenses.
VAT
When the turnover of your business is at a certain point and you’re required to sign up for value-added tax (VAT). There may be tax-saving benefits when you register earlier.
A professional accountant can help you decide the best option for you and help make tax returns. tax returns which VAT registered businesses have to submit.
Making VAT returns and payments on time or in error could cause penalties. A professional accountant can ensure that you do not fail to meet deadlines or commit mistakes.
Employing employees
When your business is starting employing employees there are more regulations to adhere to. This can be a bit overwhelming and can be time-consuming. An accountant can take away the daily tasks required when hiring staff.
If you hire employees, it is essential to adhere to the regulations for payroll, such as operating the PAYE. A certified accountant will monitor your payroll procedures as well as calculate the costs and deadlines.
There are a variety of other rules of employment that apply to areas like parental leave, employment contracts and termination. A lot of new employers do not have the skills to navigate through what could be an unintentional legal maze.
Sherwin Currid Accountancy can get you directly in touch with the Employment law services. It offers direct access to experts in employment law and tools to assist you in complying with laws and regulations.
Pensions
According to the auto-enrolment rules employers are required to automatically enrol certain employees into an employer-sponsored pension plan and pay contributions to it. If you do not adhere to the rules, you could be subject to the possibility of a penalty.
Employing an accountant to manage your pension plan for employees can ensure that your company adheres to the legal requirements.
Incorporation
Many new businesses start as sole traders, before deciding to change to incorporation as a limited company. There are a variety of reasons why for this, like reducing their tax liability or safeguarding their brand’s name when the business expands.
Additional responsibilities are enacted When transitioning from sole trader to a limited business therefore it is important to be aware of the consequences. A professional accountant will guide you through the process and assist to make the transition.
Do you need an accountant to help you with your startup?
Sherwin Currid Accountancy is awestruck by working with startups that are new to the market. For more information about our offerings and to schedule a complimentary consultation, contact us at 0800 135 7157
