Fundamentals of a business budget

A business budget is one of the essential tools in managing your business finances and actively building your business.

A budget shows what you plan to do with your cash over the next year.

For a complete picture of your business health, you need to review the profit and loss statement, the balance sheet, the cash flow forecast and the budget. Taken together, these reports allow you to make informed business decisions and monitor performance.

Why have a Budget?

  • Forecast sales and expenses according to monthly or quarterly variations.
  • Evaluate performance over time, including changes or patterns.
  • Get really familiar with where your money goes and where it comes from.
  • Clarify targets and goals and use the budget to help you focus and achieve those goals.
  • Comparing actual figures to budgeted figures allows you to see potential problems early and plan for unexpected costs.
  • A budget will help you to see the big picture and stay motivated over the long term.

Where to start

A basic budget takes known income and expenses, then makes certain assumptions about the timing of income and planned expenditure. The basic budget is based on cash in and out of the business.

Over time, as you start to see the benefits of using a budget, your budget should evolve into a more sophisticated version that includes non-cash elements such as provisions and depreciation.

Most businesses will start with one budget but soon move to having three budgets.

  1. Business as usual – the next year’s budget is based on current year income and expenses, with perhaps a small adjustment for consumer price index increases.
  2. Worst case – budget is based on a pessimistic view of next year’s performance.
  3. Best case – budget is based on an optimistic view of performance over the next year.

A budget is usually for a financial year, but you can also set up budgets for two to five years.

Once you have one budget (or more) set up, you can then run your current financial reports against the budget to see how you are tracking. This allows you to make rational business decisions in real time to adjust accordingly.

Your can run your financial reports monthly and adjust your budget as needed.

What Next?

Now is a great time to put a budget into place for the coming financial year. Book a time with us to help you create a meaningful budget in your accounting software so that you can use it as a proactive part of your business management, strategy and your success.

Maintaining Customer Relationships

With many businesses struggling to achieve pre-Covid sales levels, and the potential for unemployment to spawn a new breed of start-ups, having a customer retention plan has never been more important.

Surprisingly, the most inexpensive way to grow a business is to maximise customer retention. Statistically, the probability of selling to an existing customer is 60 – 70% and drops to just 5-20% for a new prospect. Existing customers are also 50% more likely to try new products and spend 31% more when compared to new customers.

10 Retention Strategies to boost sales with existing customers:

1. Listen to bad reviews and complaints.
These are a blessing in disguise so encourage all feedback, including complaints. Consider running the Net Promotor Score customer survey or asking your customers the all-important question ‘What’s the one thing we should do to improve our service to you?’ Then, act on that.
2. Go old-school. Call your customers.
Calling your key customers every few months shows you care and gives them individual attention. Simply ask how they are, talk about any new products or special offers, and let them know that you care. Your call process and frequency will depend on your industry.
3. Go the extra mile. It’s never crowded.
If you’re a service business, schedule an after-service phone call in your diary to obtain feedback; asking if the service has met their expectations. This is easy to do, but few businesses do it, so bake it into your sales process. Quality trumps speed!
4. Create a VIP programme.
Reward your most loyal customers, knowing that it costs five times as much to attract a new customer than keep an existing one. Consider members-only events, discounts and VIP cards. This applies to almost any industry.
5. Be social.
Get creative on your social channels. Follow key customers and be part of their online community. It may be worth setting up a closed Facebook community group to foster community spirit and leverage your customers to help build your brand. For example, a vegan restaurant owner could create a closed Facebook community where customers share community events, recipes, ideas, menu suggestions, etc.
6. Have a referral system.
There are three simple steps to a successful referral system. Firstly, ask for referrals (make this clear on your website and in all other communications). Secondly, when you get a referral, thank the referrer. Lastly, reward them, either by giving them ‘soft dollars’ (a voucher to spend in your business) or an appropriate gift.
7. Hold events (social distancing permitting).
Consider hosting invitational instore events or organising a group to attend a sports game or movie premiere; just some ways to thank customers and reward their loyalty. Take the communication offline to encourage social interaction between close customers and your team.
8. Send a thank you card.
When you get a new customer, send them a handwritten card. Set a high standard of customer care by making that first impression. Snail mail is rare these days, so make it count!
9. Use the FGG principle.
Find out what they want, Go and get it, then Give it to them! Every chance you get, ask customers what they need, what you could be doing better to serve them, and then act on that. Help them to help you grow your business.
10. Create lifetime customers.
This strategy should be your number one priority. Start with your purpose (why you exist for your customers). Summarise it in one sharp sentence. Make sure your team understands your purpose and how behaving true to that purpose will help create customers for life.

Creating your Customer Retention Plan

You’ve probably got lots of ideas for improving customer retention. You won’t be able to implement them all, so choose some strategies that will be easy and inexpensive to implement but will have a big impact. You’ll need to record your chosen strategies and actions in a Customer Retention Plan and train your team on how they all play their part.

“Satisfaction is a rating. Loyalty is a brand.” – Shep Hyken

Reduce Debtor Days and Increase Cashflow

Managing the gap between the receiving money into your business and paying money out of your business is vital for sustaining viability.

Debtor days is the average number of days taken for a business to receive payment for goods or services. Keeping track of the average number of days for a business to receive payment is important in understanding the cashflow gap you might experience and the impact on cashflow planning and budgets.

How to Calculate Debtor Days

(Year-end receivables amount ÷ annual sales) x 365 days = average debtor days.

Here’s an example: An IT consultant has in her terms and conditions that payment is due 21 days after invoice date. But she is interested to know what the actual average payment time is.

Trade debtors at 30 June 2019 = £35,000

Annual sales for 2019 = £478,000

(35,000 ÷ 478,000) x 365 = 26.7 days

With this information, she can either alter her cashflow planning according to the actual time-frame or take steps to reduce the average number of debtor days.

What can you do to reduce the payment times?

  1. Update your payment terms – and make sure the terms are clear on every invoice issued. Don’t forget to include bank details on the invoice!
  2. Regular admin – schedule a regular time for your own administration and get your invoices out promptly.
  3. Send to the right person – when you send invoices, make sure you address the email personally to your contact. Send the invoice to multiple addresses if possible, for example, your contact and the accounts department.
  4. Use technology to your advantage – use automated invoice reminders to notify customers when an invoice is about to be due and then when it is overdue. Do not wait to send notifications manually, let the software do it as soon as the invoice is a day overdue.
  5. Make it easy for your customers – list the payment terms, for example, due in 14 days, as well as the actual due date.
  6. Provide incentives for early payment – for example, a 5% discount if paid within five days.
  7. Offer several payment methods for clients – make it easy to pay by adding an online option such as credit card or PayPal.
  8. Offer instalment payment plans – over a mutually agreed period. This allows you to plan for part payments, rather than being inconvenienced by the whole invoice being paid late.
  9. Do not offer unlimited credit to customers – make sure your terms and conditions include the right to refuse further supply if invoices are outstanding. Request part or full payment before supplying more goods or services.
  10. Talk to your suppliers – Maintain good relationships and clear communications so they are more likely to help you if you need an extension on your bills. If possible, renegotiate supplier terms that suit your business cashflow.

During tough times it can be difficult to get paid on time. Use low activity phases in your business to update your terms and conditions, implement alternative payment options, think about ways of making it easy for customers to pay you and clarify information on your website.

Talk to us about adding payment options, updating your software and improving business systems to assist in reducing the number of debtor days to improve your cashflow. We can also look at average debtor days of your business compared to industry averages and discuss ways of managing cashflow during difficult periods.

gHawk VS Remote Working

We have been lucky enough to continue providing our services during lockdown and we want to share how the gHawk team has been working remotely.

We always knew at gHawk Accounting, that we have this great opportunity to work remotely. We use wide range of cloud based accounting and other business software, video Zoom meetings for our team get-togethers, trainings and catch up sessions with our Clients. We have bespoke CRM system which is the core of our business, we have hundreds of written procedures and we comply with all accounting standards. And finally, we are paperless business, so except a computer (and a cup of good coffee) we do not need anything else to do our job. We all knew that, but only recently we had a chance to check that in reality. After almost 3 months of lockdown I can certainly say – we “passed the test”

Behind this success there is one more, the most important element. A human element! An experienced and reliable team! At gHawk Accounting we are very lucky we have small, but dedicated team that works well together. We recently held our team bonding session via zoom which helped to increase team motivation and communication. A team that works well together is more efficiency and increases chances of success for the business. People are the most important asset in a business. A cohesive team that is well motivated gives your business an added measure of resilience and put you ahead of the competition.

Does your business have the right people on board? Do you use or you consider using remote employees/partners/freelancers? The selection of these members of the team does not vary from traditional enrolment of employees. All criteria are the same, but there is even more to consider when you choose your remote partners. You should pay special attention to their efficiency, experience and their flexibility to support your business. And last but, definitely not least make sure you consider security of your business.

Once you have hired the candidates, it is extremely important to fully engaged them in the business and in their role. That can be done only by your effective management. Provide role, but also cultural training, determine and share your company core values. Set the standards regarding clarity of communication, use the right technology and build the strong relationship.

 This is the way to make an impact, by bringing on the best talents, creating meaningful place to work and together with your new team, achieving new milestones. This is the way to be in 2020.

This article was written by Ela Grzybowska, Accounts Assistant and QuickBooks Expert.

Top 10 Things to Consider When Buying a Business

Recently, I have been helping a young entrepreneur to buy a new business and thought to share my top ten things to consider when buying a business. 

1.   Funding sources – Have you got the funds to invest in buying the business? If you do not have the funds, could you afford to borrow? Would buying the business with the borrowed funds make a sound investment and enable you to repay both the loan and interest?

2.   Motivation and purpose – Be clear on why you want to buy a business. What is your motivation for buying an existing business? Be clear about what you are getting for your money. Is it a share of an existing business or are you buying just the business assets? Is it value for money? Is there an alternative means of getting the same? E.g. Could you build the same business from scratch at perhaps a lower cost? If you didn’t buy that business, what could you do with the money?

3.   Ownership structure of new business – What legal structure is your new business going to take? It could be a company, or you could run it as a sole trader or in be partnership. Choose a structure that is most appropriate for the type of business given the risks involved, level of turnover and profitability.

4.   Your experience in the industry – What experience have you got in that industry? If you do not have much experience, could you afford to hire an industry expert to help you run and manage the business or are you willing to learn and acquire new knowledge in the new industry? To run a successful business, you require specialist industry knowledge in order to be more effective and make a profit.

5.   Time scales and availability – Buying a business can be a lengthy process, requiring detailed negotiations and reference to multiple documents. There will be legal contracts exchanged so the finer details and the terms and conditions attached to the deal must be well understood before making a commitment to buy. It is important that you allow enough time for the negotiation process and to deal with any unexpected discoveries.

6.   Commercial Due Diligence – This is perhaps the most important aspect before buying a business. You should undertake thorough due diligence to satisfy yourself that the business is viable. Commercial due diligence is a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential. You should review the financial accounts including the Profit and Loss account and Balance Sheet for at least the last 3 years. You should verify the assets and liabilities of the business and understand what will be passed on to you and what will not. You should review contacts with all stakeholders e.g. customers, suppliers and employees and understand your obligations to them when you buy the business. The seller should provide you with a buyer’s pack containing information about how the business is valued and what is included and what is not included. The seller is under no obligation to disclose matters they do not consider material to the sale, but legally they cannot give false or misleading information, so be sure to ask as many questions as possible. It is your responsibility to satisfy yourself as to the value of the business before entering into any contracts, so do take the time and if necessary seek professional advice to make sure this is done right.

7.   Risk Register – After the commercial due diligence exercise, you should prepare a risk register showing areas of uncertainty in the business. Against each risk, there should be an action to mitigate the risk and reduce the likelihood and impact of each risk. E.g. What if you lost 25% of the customers? How will you ensure that the customers continue to visit your business?

8.   Business plan – this is where you plan the future of your new business and decide how you will develop and improve it. What products and services are you offering? Are you targeting the right customers? Who are your competitors? What are your strengths, weaknesses, opportunities and threats? What will your strategy for growth be? What will your internal management structures look like? What is the projected financial plan? Will you be profitable? What is your expected rate of return? It is important to have a business plan that you can implement once you have bought the business. Furthermore, this exercise helps to highlight any areas you should be asking for additional information from the sellers before it is too late.

9.   Tax implications of buying a business – you should plan for tax when buying a new business. The scope of taxes will differ depending on each business e.g. If buying shares and the value is over £1,000, stamp duty will be payable; if buying a property, then Stamp Duty Land Tax will be payable. If buying a company, the purchaser would also acquire the inherent tax liabilities both known and unknown. It is therefore important to carry out a tax due diligence review to cover amongst other things, corporation tax, PAYE and National Insurance and VAT. Your circumstances will determine which taxes are applicable.

10.   Professional advice – it is important to seek professional advice when buying a business. A good accountant will make the necessary checks and inquiries so that you are armed with full and complete information when making your decision to buy. A good solicitor will draft the contracts and obtain warranties and indemnities from the seller to reduce your risk exposure. A surveyor may be needed if you are buying a building or signing certain types of leases. Again, your circumstances will determine what professional help you need.

That’s it! You have my top ten things to consider when buying a business. If you found like this article, let me know by giving it a thumb’s up, commenting below and sharing with others. If you think I have missed something or you want to add to the list, leave your comment below. 

8 Key Points To Continuing Your Business Through Covid-19

To feel like you are in control of your business during this pandemic we have chosen 8 things that every business owner should keep on top of.

  • Wellbeing

This is a stressful time and it’s important we look after our mental health as well as offering mental health support to our team.

Some tips for managing your mental wellbeing:

  • Select your information sources carefully.  Access information from official sources when required.
  • Try to maintain your daily routine.  Some adjustments will need to be made but try to keep to your routine as much as possible.
  • Exercise each day.  Go for a walk or run and get some fresh air and sunshine.  Even if you’re self-isolating, you can get outside while maintaining social distancing.
  • Get enough sleep.  Easier said than done at times.  Put technology away earlier and read or listen to an audiobook to help you relax.
  • Maintain a healthy diet.  Eat a range of fresh and nutritious food.  Reach out to your community and swap produce if possible.
  • Stay calm.  Choose a relaxation practice, e.g. yoga, meditation, etc. and commit to doing it daily.
  • Stay connected.  Spend time with your family and keep in contact with friends; call instead of texting.
  • Be positive.  With crisis comes opportunity.  Seek out opportunities and don’t catastrophise.

If you’re struggling to cope and need to speak to someone, you can call Samaritans on 116 123 any time.  In an emergency, dial 999.

  • Personal budget

Review your personal budget and ‘trim the fat’.  Identify areas where you can save money.  Your personal budget doesn’t need to be complex – it could be as simple as totaling your expenditure from the last month or 2 to identify your monthly personal costs.  From there identify where you can make savings e.g. on entertainment, coffee, gifts, and any other unnecessary expenditure.  Every saving you make takes pressure off what the business needs to provide to you.

Don’t cut costs for essential utilities; a strong and reliable internet connection is a must if you’ll be working from home. 

  • Supporting Your Team

Your team members will be worried about job security.  The government has stated that there will be job losses during this time.  Be open with your team.  Share your plan with them and be honest about the potential impact the pandemic will have on your business.  If there are to be job losses, ensure you obtain legal and HR advice on the best way to handle restructuring, stand down, reduced hours, furloughing workers, and redundancy processes.

  • Terms of Trade

Review your Terms of Trade and update the terms to reflect your changing business practices.  Share your updated Terms of Trade with your customers, highlighting key changes.  In particular, review your payment terms and delivery terms.  Remember to enforce your Terms of Trade at this time.  Don’t let customers avoid paying you, as this could have a material impact on the sustainability of your business.

We have a Terms of Trade Template available to help clients develop robust Terms of Trade, please contact us if you need help with this.

  • Offer incentives to retain customers

You customers may be facing job losses or reduced hours and lower income, so they’ll be prioritising where they spend their money.

Consider the types of incentives you can offer customers to keep buying during this period.  Can they spread the cost over a number of weeks or months?  Companies such as Afterpay or Laybuy can enable this.  You may be able to arrange consignment stock at this time, whereby you only pay your supplier once you’ve been paid by your customer.

  • Communicating with key customers

Ensure you regularly communicate with your key customers so they’re aware of what’s happening, particularly if you have an ongoing relationship with them to supply goods or services.  They’re likely being inundated with communication from numerous sources, so keep all communication brief.  Make your communications as personal as you can.

  • Your business

Managing cashflow is essential for a business at all times but becomes even more important during times of crises.  Bear in mind that your customers and suppliers will also be concerned about their cashflow.

Preserving and bringing forward cashflow, and creating a war chest of cash reserves is important right now.

  • Cashflow Forecast and Cashflow Management

The first step to managing your cashflow is to create a Cashflow Forecast.  Projecting your cash position forward gives you the ability to make far more informed decisions.  Your previously prepared Cashflow Forecast will no longer be valid.  We can help you review and update it to reflect the impact that Covid-19 may have on your cashflow.

Some businesses will need to look at their cashflow and their cash burn on a weekly basis.

Breakdown Of: The Self-employment Income Support Scheme

Being self-employed is challenging at the best of times not to mention having to deal with the effects of Coronavirus, but there is support out there for everyone.At gHawk want to make it as easy as possible for everyone to access and understand the support provided by the government.

The Self-employment Income Support Scheme (SEISS) will support self-employed individuals. As well as members of partnerships who have lost income due to COVID-19.

This scheme will allow you to claim a taxable grant worth 80% of your trading profits up to a maximum of £2,500 per month for the next 3 months. This may be extended if needed.

How Much You Can Receive

You can receive up to 80% of your average profits from the last 3 tax years as below. The amount you receive will be a taxable grant. You will need your profits for the following periods where applicable:

6th April 2016 to 5th April 2017

6th April 2017 to 5th April 2018

6th April 2018 to 5th April 2019

The grant payable will be up to a maximum of £2,500 per month for 3 months. The scheme will start in June. We expect that HMRC will pay the grant sum directly into your bank account, in one instalment.

How to apply

You cannot apply for this scheme yet.

HMRC will contact you if you are eligible for the scheme and invite you to apply online.

Beware of Scammers

If you receive texts, calls or emails from anyone claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and they asks you to click on a link or to give information such as your name, credit card or bank details, IT IS A SCAM.

You should not contact HMRC, doing so will only delay the urgent work being undertaken to introduce the scheme.

More information about this can be found on HMRC website. Let us know if this affects your business and we can provide further assistance. 

6 things you didn’t know about Quickbooks Online

6 things about quickbooks

We’re big fans of QuickBooks Online at gHawk Accounting – because by making our lives simpler, QuickBooks makes our clients lives simpler. Organising your business finances has never been easier. With online platforms, like QuickBooks, you can access your accounts from anywhere, at any time.

But that’s not all. Whether you’re a novice user, or a long time convert – here are 5 things you may not know you could do with QuickBooks Online.

1. Manage project costs {coming soon!}

Using the Projects feature on QuickBooks, you can easily track a project’s income, expenses and profitability.

  • Head to the Projects menu and create a project.
  • Assign a name and a customer or client to the project.
  • You can now add transactions to projects as they appear in your feed – you can also go back and assign historic expenses to the project (if you created the project file after you’d started working on the project itself).
  • After inputting financial information into the project, you’ll be able to view ‘cost and profitability info’ or ‘job costing’ reports and graphs.

2. Link your bank account for direct feeds

Don’t want to manually enter your accounts data? You can very easily sync your bank feed with QuickBooks Online, allowing you to swiftly reconcile payments and expenses whenever you have time.

  • On the homepage, navigate to ‘Connect an account’.
  • Fill out the relevant information and approve the feed via your online banking log-in.
  • QuickBooks online will now download your transactions for you to categorise.
  • Once you’re all set up, you’ll have a rolling feed that informs the Profit/Loss and Expenses dashboard – allowing you to see how you’re doing, live!

3. Set up bank rules

Once you’ve downloaded your transactions, you can go a step further. ‘Rules’ save you time by grouping similar transactions, or assigning regular purchases or direct debits to a particular client, code or expense. From then on, those recognisable transactions will be automatically categorised.

  • Under ‘Banking’, select ‘Rules’.
  • Here, you can create a new rule from either money-in or money-out transactions.
  • Set your rule conditions, specifying the conditions under which a transaction will be categorised.
  • You may remove or add conditions to your rules at any time – plus, create as many rules as you need.

4. Record your business mileage on the QuickBooks app

Keeping track of your business mileage is important when it comes to claiming expenses. With the QuickBooks app, you can easily track your miles and input them directly into your QuickBooks account.

  • Use the automatic GPS tracking service to log your miles within the smartphone app.
  • Categorise the mileage as either personal, or business.
  • The app will calculate your potential tax deductions and create easy to view mileage expenses reports.

5. Run reports and email them to yourself automatically

Part of healthy financial practises is knowing exactly what’s going on in your business. By creating automatic reports, monthly reports and client reports, you’ll save time and be consistently in the know.

  • Create new reports under ‘Chart of Accounts’ by selecting ‘Run report’ and entering the variables you wish to look at.
  • Email reports to yourself, your accountant or your clients by creating a report and selecting the ‘Email’ icon. QuickBooks online will send the fully formatted report to the inputted email addresses, once it has been collated.

6. Liaise with your accountant via the ‘My Accountant’ section

QuickBooks is designed to make accounting easier – for you and your accountant. The software is ready to help you liaise with your accountant by integrating the My Accountant tool.

  • Under the My Accountant tab, you can review requests from your accountant – such as specific information requests, account details or report requests.
  • Communicate with your accountant using the Shared Documents area. You can download, upload and replace documents for you and your accountant to view at any time.

QuickBooks online has the benefit of being a cloud-based software – meaning it’s updated in real time and is consistently being improved. As an accountant, this kind of software makes it very easy to connect with clients, without lengthy email chains or constant phone calls.

If you’d like to know more about how gHawk utilises cloud software, check out our article on Making Tax Digital – or get in touch.

Benefits of Investing in property using a limited company

Investing in Property

According to brokers, up to 80% of new mortgage applications are now for limited companies. As of April 2020, mortgage interest will no longer be an allowable expense for property investors as individuals. However, as a limited company, it will remain allowable. Essentially, this means that your tax bill could be higher if you own property in your own name, rather than a company name.

There are many other interesting benefits and intricacies to owning a property through a limited company, these include:

Tax on profits:

If you own a company in your own name and you rent it out, you’ll pay income tax on the earnings as if it were a salaried job. However, as a limited company, those earnings are subject to Corporation Tax – which is around half the rate of income tax (if your income tax is at the higher rate). If taking the dividends from the company, additional tax is payable. To avoid the tax on dividends that you’d pay when you withdraw money from your company account, you can simply allow the profits to build up and later use them to purchase another property through the company.

Expenses:

As mentioned earlier, once the new rules come into effect in April 2020, you’ll be able to claim the entirety of your mortgage interest as expenses – if you bought the property through your limited company. Naturally, you cannot do this if you bought the property as an individual.

Portfolios:

If you’re building up a Buy To Let portfolio, being a limited company could be advantageous. You are not required to pay income tax when reinvesting profits into further properties. You will still have to pay Corporation Tax on trading profits (reducing to 18% by 2020) however, this is vastly lower than the higher income tax rate of 40% or additional rate of tax of 45% .

Despite the benefits, there are some things to note if you’re considering investing in property through a limited company…

Dividends:

If you choose to withdraw dividends from your company, you’ll be charged tax on withdrawals over £2000. Therefore, if you need to access the profits made by your property investment, you need to be aware that you’ll have to pay tax. As mentioned before, you can leave the money in the company account and continue to purchase property instead.

Company costs:

Running a limited company has got higher costs e.g. Preparing statutory accounts, Company tax returns, filing with Companies House and many other expenses mean that establishing a company for the sole purposes of buying property may not be immediately profitable.

Mortgage rates:

It’s also worth remembering that many lenders will charge higher interest rates to limited companies. You can claim these as expenses, but be aware that you may get lower rates as an individual. You may also have to be selective when choosing your mortgage provider as not all lenders will lend to limited companies.

Transferring:

The final thing to bear in mind is that transferring a property from an individual to a limited company is almost the same as selling a house. View it as buying the property from yourself and paying all of the tax costs associated with selling or buying a house.

If you are already a limited company or wish to build a property portfolio, it’s worth discussing the tax and expenses advantages with your accountant or financial advisor. In some cases, this could save you a lot of money. In other cases, it may not be the most efficient way to buy.

If in doubt, it’s always best to discuss your individual circumstances with an accountant.

How to pay your taxes: Income tax, VAT and Corporation tax

How to pay your taxes

Taxes don’t have to be difficult or confusing. If you’re a freelancer or sole trader, it can be much easier to keep on top of your tax contributions than you might think.

For many sole traders, software and spreadsheets allow them to manage their day-to-day finances. When it comes to a tax return, using an accountant can be helpful in terms of ensuring that you’re not making any mistakes on your return, you’re maximising on all available benefits and you’re certain that you’re paying the correct amount of tax.

How do I know how much tax to pay?

Throughout the year, it’s advisable to keep 10-20% of your earnings to one side, in preparation for your tax bill.

At the end of your tax year, or when HMRC ask for it, you need to submit a tax return. Once that has been submitted, HMRC will inform you of how much tax you owe. You can pay this calculation (known as an SA302 form) online or by cheque, within a designated deadline.

How do I submit my earnings to get a tax calculation?

To submit your income and expenses, you need to register for Self Assessment on Gov.UK. Here, you’ll be able to fill out all of your information when it comes to submitting a tax return. If you are confused or concerned about submitting your tax return, an accountant can do it for you.

What if I make a mistake on my tax return?

If you make a mistake on your tax return, you must tell HMRC as soon as possible. You can amend the return within 12 months of submitting it – the additional tax will be due. If you choose not to tell HMRC and you are found to have made mistakes on your tax return, the consequences can be quite financially severe. Read more about Self-Assessment penalties to watch out for.

What are payments on account?

You might be asked to make payments on account if your income has increased. Essentially, payment on account is the process of paying some of your tax bill in advance. You only make payments on account if your previous year’s tax and National Insurance bill was above £1,000 and only then if less than 80% of your tax liability was collected by being deducted at source.

What if I don’t have enough money to pay my tax bill?

Technically, HMRC prefer you to pay your tax bill all at once. However, if you are having financial issues, then you should contact HMRC to set up a ‘time to pay’ arrangement. Be aware that they will expect you to have tried other means to pay your tax bill before you contact them. For example, borrowing from friends and family or taking out a loan.

Does ‘Making Tax Digital’ affect me?

From 2020, sole traders will be expected to be compliant with the Making Tax Digital scheme. This scheme is already in place for VAT registered companies and means that tax returns must be submitted online every quarter. Speak to your accountant about becoming digital ready, or check out our post on what you need to do now!

Once you are used to the process of submitting a yearly tax return, it isn’t as complicated as it may seem. The easiest and most efficient ways to prepare for a tax return is to keep on top of your bookkeeping all year round, put regular chunks of income aside in preparation and always have an accountant that you can contact with queries or concerns.

Don’t go it alone – we’re here to help.