At last night’s #yorkshirehour I was asked to write a series of blog posts to give a guide to self-employment from the initial idea through to growing the business and the year-end. Rather than give you a lot of information at once I will break it down into several blogs which will be easier to digest.

I’ve already got a lot of ideas to include, but are there any that you would like including too? Even if you think it may be a silly question and don’t want to post it in the comments box below
email it to me instead and I’ll answer your question in the blog.

What do you want to know?

A few people have asked why I chose to become a bookkeeper when there are many other career paths which I could have chosen. The main reason was that I wanted a career doing something which I enjoy whilst providing a challenge at the same time.

Image: scottchan / FreeDigitalPhotos.net

I decided to start studying because I was in a dead-end job that required me to start at 4am and then left me with an afternoon free (after I’d been to bed for an hour). After a few months it became apparent that the job was going nowhere and I was left with a few options:

• Stay there are enjoy doing whatever I wanted on an afternoon, which was mainly watching and playing sport
• Apply for another job
• Stick with the current job and use the afternoons to study and become qualified

The choice was easy and several years down the line is probably the best choice I’ve ever made. Not only has becoming qualified meant that I am employed in a job I enjoy, but I am also able to work self-employed and build up my business with the aim of one day becoming completely self-employed. The challenge now is to achieve that goal.

What about you?

Why did you choose the career you are in and how did you go about overcoming the challenges that it has brought with it?

Over the past few months I have made a lot of blog posts giving tips and advice for small businesses. Below are the 3 posts (in no particular order) which have received the most comments. Have a read through them and let me know what you think.

Image: nuttakit / FreeDigitalPhotos.net

• 3 Reasons you shouldn’t put off filing your tax return – Quite a topical one considering the UK Tax Year has just ended
• How much money do I need to start my own business? – Always the most visited post throughout the week
• 5 Social Media Pet Peeves – This is a recent post, but seems to have got people talking

If you’ve read a post on the blog recently that you have liked, please let me know by way of a comment/retweet. Based on the comments/tweets I will be able to tailor more posts to suit your interested

 

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In the last couple of years I’ve visited more first time clients and new businesses than ever before, all of  which say ‘I’ve left it too late’. They are of course referring to their business’ accounts.

Whether you are a sole trader, ltd company or massive conglomerate you have to file your accounts and/or tax return by the due date or face the financial penalties for late filing, which could be up to £1,600.

From a sole trader’s standpoint it’s quite easy; the tax year ends on the 5th April and you have until the 31st January the following year to file the return and pay any tax due.

The easiest way to solve this problem is to get your tax return filed ASAP. It doesn’t matter if the return is filed on the 6th April, any tax due doesn’t need to be paid until the 31st January and if you are due a refund you’ll get it back a lot sooner than if you left it until January.

It’s not always as easy as this because small businesses, as the name suggests, are small; quite often being run by only 1 person. If you fall into this category and leave your accounts to the very last minute you could save yourself a lot of time, effort, stress and money by employing a professional to take care of your financial affairs for you.

Outsourcing your accounts/bookkeeping work brings lots of benefits for the business owner:

• Allows you more time to focus on your business.
• Peace of mind that a professional is performing the task.
• Long term it could save you money.
• You can outsource the work as and when needed.
• It can lead to more efficient processes within your business.

One of the main drawbacks is that you will have to put your trust in someone else to complete the task and give them knowledge of how your business works, which is why it is essential that you make sure that you are comfortable working with the person/business. This post gives you some tips on how to make that selection

On Wednesday I had finished work for the evening and was about to log-off to watch the TV for the night when I saw a tweet from a small business I follow that they were about to join in with #yorkshirehour. I wondered what is was all about so loaded up Twitter and searched for the hashtag – surely anything had to be better than watching the soaps my wife had recorded!

#yorkshirehour turned out to be a fantastic hour where lots of businesses in the region were all chatting and networking with each other in the same place at the same time.  The hour (8pm-9pm) flew by and I saw a message later that there had been over 800 tweets that hour with the #yorkshirehour hashtag.

I came across many businesses and people who I had not known about before, and hopefully they thought they same when they saw me. In many ways it was surprising to see so many small businesses online at the same time, but it was great to meet so many new people and businesses.

If you run a business in Yorkshire, pop on over to the next #yorkshirehour on Wednesday 8pm-9pm

Source: Social Times

In a previous post I briefly mentioned that the Flat Rate Scheme (FRS) could simplify your VAT accounting and also save you some money along the way. With this short post I’ll aim to give you a better understanding of the scheme.

The simplest way to describe the FRS is: You pay a set percentage of your VAT inclusive turnover to HMRC, but you cannot claim VAT back on purchases. The percentage will differ from business to business.

There are some qualifying criteria that your business must meet:

• Your estimated VAT taxable turnover – excluding VAT – in the next year will be £150,000 or less.
• Once you join the scheme you can stay in it until your total business income is more than £230,000.

You cannot join the FRS if:

• You were in the scheme and left during the previous 12 months
• You are, or have been within the previous 24 months
  • Eligible to join an existing VAT group
  • Registered for VAT as a division of a larger business
• You use one of the margin schemes for second-hand goods, art, antiques and collectibles, the Tour Operators’ Margin Scheme, or the Capital Goods Scheme
• You have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year
• Your business is closely associated with another business

If your business provides a service and your purchases are minimal the FRS could be beneficial to you as you may possibly pay a lower amount of VAT than if you were registered under the standard scheme.

For example, if your business is a computer repair company the rate of VAT you would pay under the FRS would be 10.5% (9.5% in the first year as you are given a deduction). If your sales for the quarter were £20,000, the amount of VAT you would pay is £1,900 (£20,000 x 9.5%). Under the normal scheme you would have paid £4,000 less any VAT on purchases.

In this example if your purchases for the quarter are below £10,500 net (VAT – £10,500 x 20% = £2,100) you would be saving money by being part of the FRS .

The two major advantages of the FRS are:

• Peace of mind. With less chance of mistakes, you have fewer worries about getting your VAT right.
• Certainty. You always know what percentage of your takings you will have to pay to HMRC.

As always with important decision like this take time to investigate if it would represent a significant saving to your business. If you are unsure always seek advice from someone!

 

Flat Rate Scheme for VAT

As with everything there are pros & cons about registering for VAT. If your annual turnover for the previous 12 months is above the compulsory threshold then you have to register for VAT, which is easy and can be done via the HMRC website.

If you are registered for VAT you are, in effect, an unpaid tax collector for HMRC as you have to charge the appropriate rate of VAT (currently 20%) on all of your sales. Every 3 months you will need to complete a VAT return and submit it to HMRC and pay the required VAT

But wait!

If you are VAT registered you can claim back the VAT on any purchases which you make during that same 3 month period. For example, if the VAT on your sales is £1,000 and the VAT on your purchases is £500 the end total which is payable to HMRC of £500.

If your turnover is under the compulsory threshold the only main reason that you would want to register is to improve your business’ image. By not charging VAT you are saying to your customers ‘My turnover is below £73,000′. This could make it difficult to portray yourself as a big & well established company.

If you are thinking of voluntarily registering for VAT you will need to weigh up if to increase your selling price (current price + vat) or absorb the cost of the VAT and keep the selling price the same. If you are selling to well established companies who are also VAT registered, the VAT increase won’t be a big issue for them as they can re-claim this VAT. But if your customers are the general public they may not be too happy if you suddenly increase your prices by 20%.

Registering for VAT could increase your net profit

If you buy goods for £10 gross you are able to reclaim £1.67 of that (£8.33+20%), which makes your cost price £8.33 per item. You then sell this item for £20, which then becomes £24 (£20.00+20%). The amount payable to HMRC is £2.33 per item (£4.00-1.67) leaving you with a net profit of £11.67 (£24 selling price, less £10 purchase price, less £2.33 VAT).

Let’s look at this if you weren’t VAT registered…

You would still buy the goods in at £10, but not be able to reclaim any VAT. The price you sell the goods on to your end customer will be £20, which only leaves you with £10 net profit. In this very simple example being registered for VAT has increased your profit per item by £1.67. Please bear in mind that we’ve not factored in your overheads for this example, but either way your net profit has increased.

 

There are also other schemes for VAT which can help with you cash flow (Cash Accounting Scheme) and make accounting for VAT easier and potentially save you a lot of money if you do not make many purchases (Flat Rate Scheme) i.e if you predominantly provide a service. If you are unsure always seek advice from someone who can help you make the best choice for your business.

 

Source: Simply Business