Bookkeeping basics for your small business

Bookkeeping basics for small businessesRunning your small business is a big job. Whether or not you have one or two team-members, or you’re a sole operator, there are myriad tasks to be done every day, just to keep your business running. Admin – especially financial admin – can often get pushed to the bottom of the to do list and can add unwelcome pressure. In this blog post I’ll be looking at the basics of bookkeeping and outlining your options for getting on top of it.

Is bookkeeping difficult and complicated?

Unless you are trained in finance, or just have a mind for maths, bookkeeping and business finance can be daunting. Essentially, there are two options for the small business owner in bookkeeping choices – either tackle it in-house, or outsource to an accountant or third party. Whilst cost may seem the main decision factor, it really shouldn’t be.

Ask yourself a few questions and be brutally honest:

  • Am I very organised, efficient and likely to meet strict dates required of me?
  • Am I happy to spend time researching and understanding the legalities of bookkeeping and basic accounting?
  • Am I good with numbers? Do I transpose numbers (e.g. phone numbers) often?
  • Do I have time to stay on top of admin as my business grows?

It’s tempting to reply, ‘Of course!’ to such questions – after all, entrepreneurs have a can-do attitude and dedication to their business. But be honest with yourself. Focus your strengths in your business, its products or services and ask yourself if getting help might enable you to free up your time to do what you do best.

What are the basic elements of business tax and bookkeeping?

In billing a client and keeping the finances of your business running, there are few key points:

  • Tax and accounting has a strict set of dates and deadlines and missing them can lead to serious fines from HMRC
  • Your business finances and personal finances should always be kept separate
  • You must keep lists of outgoings and expenses, as well as lists of incoming funds – and evidence to support this (i.e. receipts and invoices)
  • There are elements of wear and tear that you can claim on certain types of software and business equipment
  • You must monitor your bank accounts and cash, plus any interest payments
  • If you take on employees, you have additional admin to cover, including National Insurance, payslips and more…

The main tax requirements that small business owners should know about

Corporation Tax

Corporation tax is paid by UK companies on their profits. It’s currently set at 19%, having dropped from 20% on the 1st April 2017. A full return, with your tax paid, should be submitted to HMRC within nine months of your accounting period.

Company Returns

If your company is a limited company, you’ll also need to file your Confirmation Statement, previously called your annual return with Companies House along with a declaration of shareholders and directors. This can be done online.

Annual Accounts

Your business will need to make and keep a set of full financial accounts for each year. If you run a limited company, these are submitted with 9 months of the end of your financial year. Again, they are submitted online.


All businesses with sales over £83,000 or more must register for VAT. If your turnover is below that, then it is optional. Being VAT registered means that you must charge your customers an additional 20% on all VATable sales. This 20% is then paid to the HMRC in your VAT Return payment, which is submitted quarterly

You are able to reclaim VAT that your business has paid on business purchases. For some companies, it may be advisable to use a flat VAT rate, especially if your expenses are low. The flat rate will depend on your business sector and is set by HMRC.

Income Tax

everyone has a tax-free personal allowance, after which a basic rate of income is taxed (at 20%). After £45,000 additional income is taxed at 40%, which again rises to 45% for earnings over £150,000.

National Insurance

If you have any employees, you’ll need to pay national insurance, . Any employees may be liable for National Insurance, which will come out of their salary if their salary is above the primary threshold. You could be classified as an employee.


Income Tax and National Insurance must be calculated for any staff your company has and deducted from their gross salary. Your business then pays it to HMRC on their behalf, every month. National Insurance is paid at a set rate for everyone, currently 12% above the primary threshold.

Employer’s National Insurance

In addition to the calculations of personal National Insurance for any employees, there’s also a tax called Employer’s National Insurance, which is an additional charge (currently 13.8%). this is paid on gross salary and paid for directly by your business, not the employee.


If you run a small business you will need to complete a self-assessment tax form, to calculate your personal tax for the year. The tax year runs from 6 April to 5 April and must be paid by 31 January (for the previous year’s tax). Self-assessment is in addition to company tax liabilities and any employee administration. You could add this into the responsibilities of your tax accountant, or advisor, if you wish to.

In-house or outsourced bookkeeping and accounting?

If your business is very small and you plan on keeping it small, for example you offer a service that you’re happy to fulfil on your own, then you may want to try managing your accounts yourself. However, if you plan to grow your business, employ additional support as you grow, or you just don’t really like admin and hate numbers (it’s perfectly okay to admit this!), then you may find that the burden of all of this administration is simply not for you. It’s a personal choice, of course, but advice from a good financial accountant and advisor can honestly be worth its weight in gold (pun intended!)

For further information on your unique bookkeeping requirements, or for advice on accounting software systems, get in touch today for a no-obligation chat.

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