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contact@balloonaccounting.co.uk
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Do I need to keep trading records ?

An individual, Partnership or Company must keep records that enable them to make a correct and complete return.

These records must record income received and amounts paid out to run your business. These records can be maintained on paper, spreadsheet or nowadays it is common for accounting software to be used.

Indeed in light of HMRC’s Making Tax Digital project, it is advisable that all new businesses are encouraged to use software, even if it is not mandatory for the business to use software at that stage. A range of products is available, and each should be considered against the person’s particular circumstances so contact us before making your choice.

Good practice is for the business to have its own bank account, and for all business income to be paid into, and for all business expenditure to be paid out of, this account. In this way, all business transactions can be easily identified and there is a reduced risk of: (1) business transactions being missed; and (2) personal transactions being treated as business transactions.

In addition, the individual should be encouraged to set up a tax savings account and to make regular deposits into this account to cover estimated future tax liabilities. The correct amount to put aside will be determined by the circumstances; for example, the rate at which tax is likely to be payable, the person’s anticipated profit margin, and significant one-off costs, such as the purchase of a van. It is likely that this will need to be revised on a regular basis as the accounting information is reviewed and as the business grows.

Example

Amber commenced trading as a mobile hairdresser on 1 December 2019. She expects to make sales totaling £25,000 for her first year, incurring costs of approximately £5,000. Based on an anticipated profit of £20,000, her estimated tax and NICs liability is:

 Income tax ((£20,000 – £12,500) x 20%) £1,500
Class 4 NICs ((£20,000 – £8,632) x 9%)£1,023
Class 2 NICs (£3 x 52)£156
 Total £2,679
  

Amber would be advised to transfer £225 per month into her tax savings account to ensure that she has sufficient funds to pay her future tax liabilities.

Bear in mind that failure to maintain adequate business records can incur a fine from HMRC of up to £3,000.

Please contact us for further information

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Category: General
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