Unfortunately, there is nothing to stop anybody calling themselves an accountant. This means that it is vitally important to understand the difference between qualified accountants and tax advisors, and those who are unqualified.

• Bookkeepers – their role is largely to “keep the score” by recording the financial effects of what a company has done. They are usually the best people to do routine accounting work.

• Qualified accountants and tax advisers – these are experienced professionals who have undergone rigorous training and passed extremely difficult exams. There are a number of leading qualifications – but if you look for the letters ATII, ATT, ACA, FCA, ACMA, FCMA, ACCA, CA or FCCA after the accountant’s or tax adviser’s name, you should not go too far wrong. Qualified advisers are best at dealing with the non-routine aspects of your business – e.g. helping you to increase your profits, produce your statutory accounts and pay less tax.

• Unqualified tax advisers and accountants – before deciding to use the services of one, we suggest you ask yourself – ‘would I put the health of my family in the hands of an unqualified doctor?’ If the answer is no, as we’re sure it would be, why consider putting the health of your business in the hands of an unqualified tax adviser or accountant? Don’t be afraid to ask what qualifications and expertise they have – and if you have any doubts, try somebody else. Not all unqualified accountants are bad, but most “problem cases” we encounter arose from a result of being with an unqualified accountant, and there’s no guarantee as to their quality, which professional firms do offer.

Statutory Accounts

These are compulsory for companies, and must be sent every year to the shareholders in your company and to Companies House. In addition they must follow a standard set of rules and conventions, and show what went on during the financial year. These accounts are mainly used by people outside your business – e.g. bankers, clients, suppliers and of course, HMRC.Sole traders report their accounts via their tax returns and often in a simplified, abbreviated format, however it often makes sense to prepare full accounts to check details and have figures to hand should HMRC query the tax return. We also believe that sometimes, more detailed reporting on the tax return heads off problems that a large lump sum figure might not.

Management Accounts

These accounts are essential for well-run businesses, but are not strictly required by law. As their name suggests, Management Accounts are mainly used by management. In fact it is very rare for them to be shown to anybody outside the business- and companies cannot usually be forced to show their management accounts to anyone other than the auditors.There are no rules that say what management accounts must look like – it is up to each business to decide what format will best help it to understand what’s going on, control the business and make better decisions. Management Accounts often predict the future as well as keep track of the past – i.e. they usually include forecasts of what is going to happen tomorrow, as well as recording what happened yesterday. In contrast, Statutory Accounts only ever record what has already happened in the past.

Both sets of accounts use the same basic information which they get from the same place – your company/business ‘books’.

Tax liabilities

We tell clients how much tax is due, to who and when but it’s worth noting the following deadlines. It’s also worth noting that should you or your company default on the payment of PAYE and NI and other taxes, there are existing procedures – which have been used successfully in the past – and new ones to not only enforce PAYE liabilities on the employee who received the emoluments and, in the case of NI, any Director of a company which fails to pay NI due, where the Director is fraudulently or negligently concerned with non payment, but it is also possible to obtain freezing orders over a Director’s personal assets to secure payment of NI liabilities and worse, HMRC now have the power to seize money direct from taxpayer’s bank accounts.

Important dates

There are various dates which you must be aware of, both for company related tax issues and for your own personal tax issues. It’s worth remembering that both HMRC and Companies House levy fines and interest for late filing of returns and late payment of taxes. These are as follows:

We said before that business finance and accountancy are a bit like driving a car. Good drivers use the dashboard to monitor their progress – and in just the same way good business managers use their accounts to monitor their business progress. So, accounts are, in a sense, your business dashboard. The two key instruments on your car’s dashboard are probably the speedometer and milometer. These are equivalent to the two key elements in any set of accounts – the Profit and Loss Account and the Balance Sheet.

• Profit and Loss Account – in a car, the speedometer shows you how fast you are going. This is equivalent to the Profit and Loss Account, which shows how fast your business is accumulating profits. Both the speedometer and the Profit and Loss Account only make sense when viewed over a period of time. The speedometer shows ‘miles per hour’, while the profit and loss account shows ‘profits per year’.
• Balance Sheet – the balance sheet is like the milometer. A milometer records how far the car has travelled and is often used as an important factor in deciding how much a car is worth. In the same way, your balance sheet measures how far your business has travelled. It is a snapshot of where the business has got to and gives some indication of how much it might be worth – but like the milometer, it tells us little or nothing about how, or how quickly, it has got to where it is.

Most accounting is little more than applied common sense. However, there are two golden accounting rules that are not immediately obvious – and so it is worth spending two minutes describing them.

• The accruals principle – for Limited companies and larger businesses, your accounts should reflect things when they arise or are earned – which is not necessarily the same as when you actually pay or are paid for them. For example, your accountant will include an April sales invoice in your April accounts, even if your client doesn’t pay you until August. However micro-businesses not liable to be registered for VAT may be able to use the “cash basis” – i.e. you only include income and expenditure when paid or received.

• Revenue v capital payments – some of the things you spend money on will not be regarded by your accountant as reducing your profits. For example, the money you pay to buy a new car or pay off a loan. Accounting conventions say that payments like these shouldn’t appear in the Profit and Loss Account – instead their effect is confined to the Balance Sheet.

The key distinction here is between ‘revenue payments’ and ‘capital expenditure payments’. Revenue payments are the running costs of the business – the type of expenses that buy goods and services which are used up quickly – e.g. wages, advertising, rent, stationery and so on. This type of expenditure is shown in the Profit and Loss Account and is often referred to as having been ‘expensed’. Capital payments relate to things that continue to benefit the company for several years – e.g. computers, cars and so on. They also include paying off loans. This type of expenditure is shown in the Balance Sheet, and is often referred to as having been ‘capitalised’.

We have now explained the building blocks of every set of accounts. The following examples are stylised versions of what these building blocks are used to construct – your Profit and Loss Account and your Balance Sheet:

Your Profit and Loss Account

Your accounts can only ever be as accurate as the books you keep. In this section we explain the books you will need if you’re trading – and those you won’t. Remember that although some records can be kept for less time, generally you’ll need six years of records for HMRC purposes.

Cash Book

For a business, this is your single most important ‘book’. It records all of the payments made into and out of your business bank account. It is crucial to set up the book appropriately at the commencement of business. We provide clients with a bookkeeping spreadsheet. At the end of each month the totals for each column for that month will automatically be calculated.

Sales invoice file

It is both very helpful to your business, and reassuring to HMRC, if you issue your sales invoices in strict numerical order. You should also set up a file with dividers for each month and file your sales invoices in strict numerical order. The only exception to this rule is that unpaid invoices should be kept in a special section at the front of the file until they have been settled, at which point you should mark the invoice ‘paid’ and also write on it the date paid, and then file it in strict numerical order.

Purchase invoice file

This would be a file divider for each month and a front section file for unpaid bills. On receiving an invoice, file it in the unpaid section until such time as you pay it. On paying the invoice you should write ‘paid’ and the date on the invoice itself, and then transfer it from the unpaid section of the file to the section for the month in which you made the payment. You should also, of course, ensure that the payment is recorded in your cash-book.

Tax file

If you’re not a business, or if you have a personal tax return to do, keep a tax file with all information relevant to your personal tax circumstances. This will include bank interest received (not ISAs), dividends, Child benefit, P60s, P45s and P11Ds etc from employment, and things like Charitable donations, pension contributions etc. You’ll usually receive all this around April – May each year.

So you’ve done everything you can and you’ve submitted your returns for the year. The one day a letter arrives from HM Revenue & Customs enquiring into your affairs.

It should be simple but it rarely is because HMRC are constantly cutting back their staff numbers and using aggressive tactics to extract as much tax revenue as possible from taxpayers.

Halsey & Co, offer a Fee Protection Service to give you at least some peace of mind. It won’t pay the tax due, or the penalties if you’ve been careless or otherwise, but it will give you access to legal helplines and most importantly, will cover our fees incurred in defending you.

Our renewal period is 31st August each year so please contact us for a quote. There are fixed costs for Tax clients, Limited Company clients and so on and premiums are discounted by 25% for first time policy subscribers. They are also subject to VAT so registered clients can reclaim this, and the premium itself is tax deductible.

The following is a selection of free or very low cost training, advice and business resources that are available locally to help small businesses get the most out of their staff, their business ideas and themselves.

• Business Link – provides excellent free or low cost training in key business skills such as marketing, selling, negotiating and bookkeeping. They also provide free counselling and support, and are an invaluable sounding board for your business ideas or issues. www.businesslink.gov.uk
• The FSB – the non-profit making Federation of Small Businesses has a free telephone legal hotline staffed by experienced professionals and which is available to members on a 24 hour a day basis. Annual subscription, which includes a number of other benefits, depends on the number of employees in a business and starts at £130. They can be contacted on 0207 5928100.
• Free consultations – many professionals offer free consultations – take advantage of free initial consultations offered but don’t allow them the luxury of using the meeting merely to find out about you and your business without actually providing any advice. In the case of solicitors, the Law Society will arrange a free consultation with a suitably experienced local lawyer if you ring them on 0207 2421222.
• Free banking – most banks offer new businesses one year’s free banking providing they stay in credit.
• Free books – local libraries should not be overlooked as a source of reference material and trade directories, etc. It is also worth remembering that the libraries of colleges and universities generally welcome members of the public and often contain extremely good business reference sections.
• Health & Safety – free advice on health and safety considerations and legal advice on obligations is available from the Health & Safety Executive.
• HMRC – Don’t overlook the guidance available on HMRC’s website.

Resources for latest tax rates and allowances:

NI:                          http://www.hmrc.gov.uk/rates/nic.htm

Tax:                        http://www.hmrc.gov.uk/rates/it.htm

Corporate Tax:     http://www.hmrc.gov.uk/rates/corp.htm

With well over 500 clients, we have extensive experience in all fields.

Our typical service includes:

• Unlimited face to face meetings with short notice if required.
• Your own dedicated accountant who you can telephone, email or meet face to face, but others available as a backup in case they are unavailable.
• Outstanding reputation – we get most of our business through referrals and we keep clients for a long time.
• Free bookkeeping templates.

We’ll take care of all your business and personal taxation needs, including:

• Preparation and submission of Company Year-End
• Prepare and complete your personal self assessment tax
• Proactive tax planning
• Send email and/or postal alerts so you never miss a deadline; we understand that you are busy and may miss one, which is why we usually follow up with a call.
• Help you to: Structure your business in the most tax efficient way possible.
• Understand when, how much and where to send payment for all taxes that are due.
• Understand what you can claim by way of expenses and the impact on your income and taxes.
• Understand the best way to take money out of your company if you’re Ltd.
• Understand all of your tax liabilities both personal and corporate, these include employers and employees national insurance contributions, personal income tax, VAT (flat rate VAT scheme or standard VAT) and corporation tax.