When setting up a new business, or growing a fledgling start-up into a young company spreading its wings, setting up good accounting practices may seem to be something which can be left for a later date. In actual fact, it should be one of your top priorities, saving you time, money and hassle as you grow. Here are five tips on best practices for SMEs.
Ensure you have effective IT security
You may think that you are safe from hackers and scammers and such like because you’re too small to be worth the effort it would take, but that is only true if it actually takes effort. If you allow yourself to be a soft target, then you open yourself to the risk of cyber-attack. If you lack the IT skills to protect yourself, then this is one area to which you need to dedicate budget to hiring a professional (even on a freelance/outsourced basis).
Stick to digital payments wherever possible
Using digital payments means that you have visibility over your outgoings. This means that you have clear proof of any deductions you claim from HMRC and also that you can get a clearer view of where your money is being spent to see if improvements can be made. If you absolutely must use cash for certain expenses, then it’s strongly recommended to create a digital record of purchases as quickly as possible (i.e. before receipts can be lost). There are Smartphone apps which can enter the data from a receipt straight into accounting software.
Sign up for cloud-based accounting software
Even if you can, in principle, manage your accounts by yourself using a spreadsheet, there are several benefits to using proper accounting software, one of which being that you will be prepared for when the Making Tax Digital initiative comes into force, which is due to be in 2018. In addition to this, if you do switch to using bookkeepers or tax accountants, you will make their lives much easier and put them in a better position to help you. The main benefits of using cloud-based software are that it can be accessed from anywhere and that the service provider takes care of security.
Get to grips with taxation
As an employee, tax and NI are two lines on your payslip. As the owner of a company, you not only have responsibility for income tax and NI, but also VAT, corporation tax and many other matters. To add to that, you would also require the handling of expenses and incomes professionally so as to leave no loopholes or room for errors. In such a case, outsourcing contractor accountants could be beneficial as added maintenance of payrolls, bills, and others would require in-house and added management of finances. Given that you function as a sole proprietor, you would surely require assistance to regulate and maintain all money matters. Even if you use a bookkeeper or accountant to take care of this, it’s a good idea to have at least a basic grasp of these issues, so that you can have a better understanding of your accountant’s advice.
Understand your position as a hirer/employer and how it relates to tax
In the UK there are three different ways in which to have someone work for you. They are: employee, worker and self-employed individual (also known as contractor or freelancer). Each of these grades has different implications for your legal and financial responsibilities as a hirer, e.g. in terms of auto-enrolment. While it may be tempting to work with self-employed people as much as possible to minimize your level of responsibility, this is only possible if the people in question meet the relevant criteria.
For more information, please contact Leicester Accountants, Gower Accountancy.
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