UK Accounting Systems In Business Start Up Packages
A downside of being self-employed is the amount of paperwork needed to comply with United Kingdom legislation. For example, PAYE and VAT. You can find plenty of information on this in many business start up packages. Businesses should always be set up with an accounts system that is suitable for their needs. It is important to ensure that all transactions are correctly recorded without duplication of existing records.
From a tax point of view, it is a statutory requirement to keep adequate business records. In some cases, penalties of up to 3,000 may be levied for a failure to keep proper records. Business records and associated personal tax records should normally be kept until five years after 31 January following the year of assessment.
Whatever system is adopted, it must be maintained regularly to provide accurate details of the trading performance. Some consideration should be given to the nature of the goods and services that the business will trade. For example, if the business deals in second-hand goods, a comprehensive stock book has to be maintained so that the correct amount of output VAT can be calculated. Please see the current relevant leaflets available from HMRC. For dealers specialising in low value bulk volume goods, for example, stamps, a method of global accounting has now been introduced for VAT purposes.
You may wish to simply maintain paper records, but there are many simple to use computer systems which are worth considering. As a minimum the following records should be maintained:
1. Cash book: This is used to record all transactions that go into and out of the business bank account. It should be reconciled with your bank statements regularly.
2. Petty cash book: Keep a small float of cash for minor sundry purchases and use this to record the transactions and balance.
3. Sales book: This book is used for keeping records of your sales invoices or daily takings. It can also be used to record the banking and cash balance.
4. Purchases book: To record all purchases.
5. Ledgers: Where the business is offering credit to customers, it should maintain a debtors’ ledger, which will record details of transactions with each customer, for example, invoices, credit notes and payments received. Similarly, a purchase ledger should be maintained if the business has several suppliers. These ledgers must be reconciled regularly with the sales and purchase day books.
6. Wages book: This is essential to maintain a record of all payments to employees, as well as details of deductions made.
7. VAT book: Maintaining this will ensure that the details of input and output tax plus any adjustments are immediately available to the HMRC should the need arise.
8. Debt control: Cash flow is one of the biggest problems encountered by small businesses, in common with many large concerns. If a small business allows its customers unlimited credit, it will soon collapse through lack of cash or because its debtors have become bankrupt. It is essential, therefore, that a new business establishes a system of debt control. The debtors’ ledger is essential for debt control.
It is essential for small businesses to have their accounts set up in such a way that they are a tool to enhance the company’s efficiency. In this respect business start up packages can be invaluable.
David A Griffiths is an associate of Geoffrey Cole & Co. Chartered Accountants of Reading, Berks, UK where he has written a comprehensive guide to business start up packages.
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