Accounting and making tax digital: all you need to know as a small business owner

Marine Klein
Find me on:
For small business owners in the field service or trade industry across the UK, March signals a period to get to grips with their finances. It's time to dot the 'Is' and cross the 'Ts', and make sure all your tax obligations are fulfilled ahead of the new financial year.
Are you ready for the digital switch?

One of the reasons most people can think of better things to do than manage their taxes is the large amount of paperwork that is attached to it. Field service accounting is not much fun. 
For some SME owners, the activity will bring to mind hours hunched over a desk, squinting at the small print to make sure everything is in order. But the good news is that the UK is switching to digital tax. Currently, you are able to file your tax return online, and by the year 2020, digitally will be the only way in which tax returns can be submitted.

It's all intended to be easier, and also let you keep tabs on your expected tax return throughout the year by having access to a constantly updated tax system online. A quarterly system designed by HMRC to allow businesses and individuals who are self-employed to keep tabs on how much they owe will be implemented in 2018.
Those registered with the system won't only receive prompts to remind them it is time to update their details, they will also have the chance to take advantage of an online support service on messaging apps such as WeChat and WhatsApp.

What's the alternative?

Until then, there are a number of very useful online accounting apps such as QuickBooks and Xero, which allow SMEs to keep their financial records in order, ready for when the time comes to submit a return. The information can be organised accurately and makes submitting it to the digital tax system a doddle, whether that is you, or your accountant.

What should I do?

As we get closer to this total digital switch over, if you have an accountant, you should agree with them which tasks you will take ownership of when it comes to periodically updating your tax information online.
It might be that you are happy to hand over the vast majority of keeping online records on to them, or if you are experienced with a program like QuickBooks, the process might be familiar enough to take care of it yourself.

'Need to know' taxes

So whether you would like to prepare for the digital switch by familiarising yourself more with the various taxes which could be applicable, or are just in need of a refresher, here are our five 'need to know' taxes for SMEs:

1. National Insurance

It's not officially a tax, but National Insurance (NI) is money which you will have to pay to the government. Sole traders pay a flat rate on a weekly basis, which is known as Class 2 NI. This is typically set at a level of £2.80 per week, but sole traders whose profits rise above £8,060 pay Class 4, which is calculated as a share of those profits.
For SME owners with a limited company, who are personally earning a salary of over £8,060, Class 1 employee NI applies and it will be deducted from this salary.

2. Income tax

Sole traders under the age of 75 pay income tax on the profit of their business once it exceeds the personal allowance level of £10,600.
In the case of SMEs that are limited companies, income tax is paid on the salary of the individual once it exceeds the £10,600 mark (assuming the individual is under the age of 75 and has no other income).
Companies typically deduct taxes from employees' salaries periodically under the scheme known as PAYE (Pay As You Earn).

3. VAT

Every kind of business needs to pay VAT if they make more than £82,000 per year in sales. There is a list of specific goods and services which are 'VATable'. The standard rate is currently 20%.

4. Business rates

These are paid on office or retail premises, although some properties are exempt from the tax or are entitled to business rates relief. Homeworkers aren't usually required to pay unless they have converted their home for work in some manner.

5. Corporation tax

Sole traders do not pay corporation tax, but limited companies do pay a share based on their profits. It is set at 20% across the board unless a company has previously made losses, which could affect their requirements.
Is it time to get an accountant?

If the above seems a little overwhelming, or if you are too pressed for time to think about trawling through your accounts, it might be time to get an accountant. Both for the sake of making accurate tax submissions and leaving your accounts in the hands of the experts while you concentrate on the core of your business, seeking professional help can be a savvy decision which can benefit you and your business in the long run.
quickbooks and commusoft
If you can't decide, here's an article on the best small business accounting software and how to choose the one that suits you best! 
Share this article