The importance of accounting

The reason accounting is important, it is a pivotal aspect of the business that essentially allows it to function. It does this by keeping tabs on the influx of money coming in and out of the business. Tracking income and expenses, and verifying compliance while providing all parties involved with the necessary information to make the correct business decisions.

What type of accounting do new businesses use?

Generally, small businesses can use either cash or accrual accounting methods. A small business accountant is responsible for recording, analysing and reporting the business's financial transactions. The numbers which are collected are converted into an understandable statement for the business owner to decipher.

Tips for choosing an accountant

Working with reliable individuals is paramount to the success of your new business, this is why you need to do the required research to find the perfect fit for you. The following tips should help you find the right accountant. 

1. Make sure you know what you need

When handpicking your accountant, you will have to identify what type of tasks and responsibilities you expect the accountant to perform for your business. Whether that entails bookkeeping tasks, or if you require monthly financial statements to be completed, a bookkeeper can be recruited rather than a start-up accountant.

If you require advice regarding your tax, preparing tax returns, and auditing financials, you will need a certified public accountant (CPA).

2. Look for small business experience

When in search of financial expertise for your new business, steer clear of the big accounting firms, because you will need an accountant which has experience with working with new businesses preferably in the same or similar industry.

The knowledge and expertise they have gathered will be important in helping your business avoid possible mistakes and mishaps they have come across in the past, being proactive and identifying issues before they escalate into larger problems. These decisions essentially fast track the growth of your business by making the right financial decisions.

3. Ask for recommendations

When purchasing a product, consumers often seek out product reviews to get an understanding of the performance of that particular product. Speaking to other trusted business owners and receiving recommendations about who to approach and use, your peers will always give your trustworthy advice as well as recommendations.

4. Compare fees

Before making a decision it is important to make sure how your shortlisted accountant plans to bill you.  Different accountants charge different rates, whether it be a fixed monthly fee to complete all your bookkeeping, but may add an additional fee for completing and submitting compliance documents. The fee for each service varies based on what services are provided and the qualifications of the person providing the services. Not all accountants and accounting firms charge the same fee for their services.

The three most important things your accountant should do

Along with having numeric skills, being computer literate and having business awareness, your accountant will need to complete important tasks for your business. Maintaining major financial reports. Preparing taxes and monitoring payments. Analysing the operations of an organisation’s finances and recommending best practices, identifying problems, and strategising solutions.

Importance of learning and understanding accounting as a business owner

Having an understanding of accounting and being aware of what needs to be done eliminates the risk of your accountant falling behind on their work. Being able to hold them accountable helps maintain their performance. As a new business, the managers are now also able to make future projections and do so by making predictions using accounting practices. In addition to being necessary for a business's immediate financial health, being familiar with accounting is also an important strategic tool to utilise and understand to grow your business.

Conclusion

While not being a straightforward recruitment process, with the help of the tips your search will be simplified if you follow the steps provided.

As stated, accountants play an integral role in your business's success and growth, with the right accountant the sky's the limit. Placing all the responsibility on the accountant though will not ensure your success, you will be required to bring your end of the bargain by providing a suitable environment for your business to succeed.

Fortunately, there are some very effective ways that you can reduce your corporate tax bill, from hiring a trained and qualified accountant to applying for specific discounts and exemptions. This article will explain how you can plan to pay your corporate tax bill and reduce it significantly.

1. Hiring An Accountant

Out of all of the suggestions featured on this list, hiring an accountant is definitely the best. The reason for this is that a professional and specialist accountant will be able to calculate expenses that can be made exempt from your final tax bill, as well as apply for other discounts that you may be eligible for. Unless you’re a trained accountant, there’s no way that you will be able to apply for these things. Additionally, according to the chartered accountants from Suretax, taxes in the UK change frequently. An accountant will stay ahead of any changes, ensuring that your tax bill is as low as possible.

2. Patent Box Relief

If your business makes profits from patented inventions, then it may be possible for you to claim patent box tax relief and pay a rate of 10% corporation tax on those profits. You could also claim R&D tax relief. It’s likely that you have never heard of either of these things, which further goes to show that you need a trained accountant to handle your business’s tax returns for you. There are myriad HMRC exemptions that you could potentially be entitled to, but without professional help, you won’t be able to realise them.

3. Deadlines

Remember, just because you didn’t claim tax relief for an expense from last year, that doesn’t mean that you can’t still claim it. You have up to two years from the end of an accounting period to claim certain tax reliefs, including R&D tax reliefs, patent box relief, and capital allowances. It’s definitely worth doing your research and seeing whether or not you were eligible to claim any of these exemptions in your last tax year. You may be able to bring down your corporation tax for this year, by claiming last year and getting a rebate.

4. Machinery

Each year, HMRC allows businesses to benefit from their annual investment allowance, which allows businesses to claim tax relief on purchases of business assets up to a specific limit. The annual investment allowance limit increased to £1 million on January 1, 2019. If your business qualifies, then you will be able to write off a significant amount of investment from your profits. Again, it’s likely that an accountant or trained bookkeeper will be better at determining what you can write off. It’s always best to leave it to the professionals.

5. Capital Allowances On Property

You are allowed to claim a 2% allowance on new commercial building expenditure, as long as the claim was made after 29 October 2018. The figure has risen to 3% for claims made post-April 2020. It is also important to extensively study the expenditure incurred so that you can determine whether it qualifies for any other capital allowances. The claim does not have to be made when the costs were incurred. Instead, claims can be made going back several years, sometimes more. It’s important to speak to a professional about this, in order to receive their advice and guidance.

6. Business Expenses

You mustn’t ever forget that you are entitled to claim back any business expenses. Company directors regularly incur expenses on behalf of their business but do not claim them back when they file their tax returns. This is something that you need to get into the habit of because it can bring down your tax bill significantly. If there are any expenses incurred by you for your business, such as taxis, meals, and petrol, then you are able to claim them back as a business expense. Do not try to exaggerate expenses or claim things that were not business expenses, however, or you could get into trouble.

7. Pension Contributions

It’s usually the case that businesses are able to make deductions from their profits for pension contributions, paid into pension schemes on behalf of employees or directors. Payments have to be made before the year’s accounting ends and cannot take place several years later. This is a very effective way of reducing one’s corporation tax. It also ensures that a sizeable pension is set up, waiting for you when you reach old age. Many people do not think about their pension or retirement, often resulting in them suffering later on in life.

8. Work From Home

When you are working from home, you are able to claim back some money for home expenses, such as heating, lighting, and electricity (but only in your work area). You may also be able to claim money for increased internet charges, insurance, and telephone calls. Again, all of this can be discussed and researched by a trained accountant, who will be able to determine whether or not you are eligible to claim back any home expenses. Many people have been working from home because of the pandemic, so it’s definitely worth considering this if you have been stuck at home.

9. Loss Relief

Make sure that your business claims all of the loss reliefs that are available to it. Businesses can suffer many different types of losses, some of which can be claimed back on your tax return. It is also possible to claim a previous year’s losses under some circumstances.

Finally, you might also want to consider throwing a staff party. You’re able to throw a staff party annually, with up to £150 per head, completely tax-deductible. This is a very effective way of rewarding one’s staff while saving money on one’s tax return.

Taxes aren’t getting any cheaper. With inflation on the rise, tax hikes are due to arrive this coming tax year. It’s important to discuss your options with a professional accountant, who will be able to strategise and tailor a plan to your business.

There’s nothing like waking early on Christmas morning and rushing downstairs to open your online tax return...

It may not be your idea of a fun Christmas tradition, but if you use the extra time off over the festive period to get your tax return sorted, you can see in the New Year with a clear conscience and a paid bill – instead of the guilt pangs and nagging worry that hit the 5 million people who are still likely to be putting it off.

You don’t have to devote Christmas Day to it; there are endless less exciting days over the festive period, when a tax return may actually help break the monotony. You have to ask yourself whether you usually have a particularly memorable 28^th December – and whether you’ll really be missing out if you spend a few hours with your tax return instead.

5 tricks to make your tax return simpler

1. Check you can get into the system in advance

Before you do anything else, sign into the Government Gateway. If you’re doing it online for the first time, you’ll need to sign up, and wait up to seven days for your code to arrive. If you’ve used the system before, sign in now and check you haven’t forgotten your log in details.

2. Spend some time on your preparations first

If you’re not great at filing, don’t try to do everything at once: day one should be about tracking down paperwork, and ordering copies of anything you can’t find.

This includes certificates for savings accounts or dividends, pension statements, proof of any employment income and a P11d. If you work for yourself, you’ll want bank statement, sales invoices, receipts for expenses and paying-in books. If you received income from letting property, you need letting agreements, and bills for expenses and management fees.

3. Make sure you’re claiming for everything you can

Check that you’re claiming for all the reliefs and exemptions available to you. This includes pension tax relief and gift aid for higher rate taxpayers. Government figures show that only 22% of higher rate taxpayers claim the additional relief on gift aid they’re entitled to – but it can really add up.

If it seems like a lot of bother to claim for something, check if there’s a simpler option. If, for example, you are self-employed and work from home, you can do the calculations and count some of your household bills as expenses. Alternatively you can just use the flat rate of £10 a month for 25-50 hours a month, £18 for 51-100 hours, and £26 for 101 hours or more.

4. If in doubt, get help

There’s loads of great information on the HMRC website, which has really improved in recent years. You can find the answer to almost any question that’s likely to crop up. There are also plenty of guides and videos offering tips to save you time and money.

If you can’t find what you’re looking for, then other than on Christmas Day, Boxing Day and New Year’s Day, you can phone the self-assessment helpline. Unfortunately, the closer you get to the 31 January deadline, the busier the helplines get, so you could spend some time on hold. However, if you stick with it, you can get the guidance you need.

5. If you’re going to need an accountant, get a move on

If you already know that nothing will persuade you to touch your tax return over Christmas, be honest with yourself about whether you’re going to need an accountant to sort it for you, and contact them before the break. Don’t leave it until January, when accountants are snowed under, and many won’t have the time to take new clients on. Professional help will typically cost between £100 and £300, so you’ll need to decide if it’s worth the expense.

Accounting departments in UK businesses have continued to shift towards digital practices, but more than four in 10 (41%) continue to rely on paper-based processes, according to new independent research.

The 'Changing trends in the purchasing processes of UK businesses' report, commissioned Invu, revealed a slight reduction in the number of businesses relying on paper-based accounting in the last few years.

The 41% in this latest report is a slight fall from the 45% of business finance decision makers who admitted to relying on paper-based accounting in 2016.

But despite the trend towards digital, the report revealed a significant number of finance bosses who admitted that their company was struggling to move fully to a digital based model.

More than half, 56%, said that a paper process was still used at some point within the purchasing process in their business.

Within accounts payable departments in these UK businesses, 16% of finance bosses said their company had not introduced any digital processes at all - relying on totally paper - while nearly a quarter 24% relied on manual scanning and storing of documents.

Ian Smith, General Manager and Finance Director at Invu, said the findings showed a welcome trend of redundancy of paper-based accounting, but said some businesses were still putting themselves at risk by continuing to rely solely on paper.

"Businesses are often dealing with dozens, if not hundreds of invoices and payment enquiries on a daily basis and trying to manage and juggle these requests and demands using paper and filing cabinets can easily lead to finance departments being overwhelmed.

"Delays commonly arising from manual processing of supplier invoices can result in a business being unaware of its future payment commitments - and then it is only a short step further before they end up in severe financial difficulties.

"Given the current focus in the UK on productivity it is frankly staggering that so many companies won't let go of their legacy paper-based systems and free their accounting teams up to add value to the business rather than drown in paper work.

"In a rapidly changing world this report shows a welcome shift towards the use of technology. I’m concerned for the future of the 41% of businesses that appear to be lagging behind”

(Source: Invu)

Based in Germany, Westphal+Partner offers a wide range of independent tax, accounting and audit services, specialising in small and medium-sized foreign-owned enterprises doing business in Germany. Besides that, the firm acts as a controlling unit for the investor ensuring oversight. As CPAs, Westphal+Partner’s accounting operates risk-oriented detecting and avoiding misstatements during the accounting process, preventing changes at the annual financial statement. Finance Monthly speaks to Partner Ingrid Westphal-Westenacher, who tells us what clients expect from an accountant and shares the challenges that her firm faces.

From your experience, what do clients actually want from an accountant?

Our customers have decided to hire experts to solve a problem that has nothing to do with their core business. They want to focus on their business idea without losing sleep thinking about tax payments and accounting. Once entrepreneurs decide to outsource bookkeeping or get help from a tax advisory, they expect viable solutions enabling long-term success. And they are right to do so. An outsourced bookkeeping must be objectively and legally correct at any time, while also being up-to -date. Since corporate tax in Germany tends to be quite complex, especially for people with scant knowledge of the local tax codes, clients should expect their tax adviser to explain tax issues in a comprehensible manner, so they can make the right decisions.

How do you make sure to keep up with you clients’ expectations?

Communication - not just with the business owner, but with the management and the staff too.

What challenges would you say you and your firm encounter on a regular basis? How are these resolved?

One challenge that we face is knowing our clients’ business, plans, expectations, and needs. Only by knowing all of them, you are truly able to advise clients on a rational basis. One way to resolve this issue is to build a relationship of mutual trust. In order to do so, we firstly articulate what customers can expect from us, clearly defining our services and explaining our proceedings. With this certainty, customers know what to expect from us, so they can focus on their businesses without worrying about taxation or accountancy standards.

Foreign clients add a cultural dimension to the customer relationship - an aspect often underestimated and frequently resulting in underlying frictions. People from different parts of the world have different cultural preferences and backgrounds; i.e. some people from China have a different attitude when it comes to taxation, when compared to people from Germany. The essence of it is to avoid pointing out the differences, but instead, to make sure that both sides fully understand how the other side’s processes and systems work. To avoid any kind of misunderstandings, we not only pay close attention to these differences, but, for example, we also have colleagues in our team who are Chinese or have lived in China and are familiar with the culture.

How are these challenges set to change, in conjunction with the advent of technologies and the potential future needs of clients?

Both challenges will persist, even with the advent of technologies. However new technologies are already disrupting audit and bookkeeping. Today, clients can check the books at the end of the month online and see how their business performed. In the future, bookkeeping will be a fully automated process with real-time results, by the day, enabling better oversight and steering and even fewer costs due to AI-powered accounting software.

As a long-term former Chairwoman of the working group Quality Assurance SME at the Institute of Public Auditors in Germany (IDW), I’m convinced we will see significant changes in the field of auditing. Tool-based data analytics will enable us to read out process data and check them by sophisticated data algorithm. This will put auditors in an unrivalled position to consult the client on strategic decisions.

What’s your piece of advice to our readers?

When the decision to outsource bookkeeping has been made, try to hire an accounting firm run by CPAs. Accounting firms with a pure background in tax sometimes tend to disregard the code of commercial law, focusing narrowly on tax law; thereby causing problems with the mandatory preparation of the balance sheet under the German commercial law, and insofar causing unnecessary trouble and costs. Finally, trust your gut feeling when hiring an accounting company - it is very important to feel at ease and understood by your adviser. Be cautious of people hiding behind technical jarring.

Website: https://www.westphal-wp.de/