Your tax bill is probably one of the most unexciting things to talk about. But it’s something that can often keep business owners up at night. There’s a real fear and lack of understanding around taxes and if that’s something that worries you, know you’re not alone! After all, you don't want to suddenly be surprised on January 25th by a £5,000 tax bill and have no idea where you will get the money to pay for it.
So it does pay to understand your tax and educate yourself on how tax works because that’s the best way not to be surprised by your tax bill when it arrives!
There are several different types of tax, depending on the type of business you have. So if you are a sole trader, all of your income is taxable as income tax and National Insurance. Remind yourself that you should be putting aside 30% of your income less costs if you can. Put that money into another account at the end of each month.
The idea of taxes shouldn’t stop you from putting up your prices. And neither should it keep you from growing your business. I’m a firm believer that you shouldn’t let tax or accounting dictate how you run your business. You should consider it, but it shouldn’t be the main driver behind how you run your business.
You shouldn’t be playing small by keeping yourself under the VAT limit. In the UK, the VAT limit is £85,000, and once you get to that level, you have to charge VAT on all your sales. It does mean you can claim back some VAT, but it often means in a service-based business that you will also be paying VAT.
Many people don’t want to be VAT registered as it’s seen as a bit of a pain. That’s not a reason not to do it! You shouldn’t be limiting your business growth to that £85,000 threshold and having to put 20% on everything. You should be preparing for it once you get to...
It’s so important to have an accounting system in your business. It doesn't matter how small you are or how big you are, everything is made easier by having an accounting system.
I am Xero certified because I love it, and I highly recommend Xero. I find QuickBooks really clunky, so if you're choosing between QuickBooks and Xero, I'd say Xero every time.
Why do I need an accounting system?
Having an accounting system will save you lots of time in the long run. It will also save you time in the short term by having all your invoices sent from the system, help you collect money via GoCardless and seamlessly match it all. Plus If you have an accounting system like Xero, you can connect up your bank, Stripe and PayPal. This makes it very easy to keep track of your numbers, because every business needs to know what their numbers are.
You can also take photos of your receipts when you are out and about (when that can happen again!) and then all receipts and invoices are in one place...
It’s safe to say that most businesses want to be financially successful. I’m sure there are many who want to be earning more than £85k per year, right? Well, not necessarily. There are an awful lot of businesses that want to avoid getting near that figure - simply because it’s the threshold for VAT registration!
Don’t want to pay VAT? That’s understandable, but having that artificial ceiling in place is stopping you growing your business further.
So it’s time to stop letting that artificial ceiling stop you. It’s time to realise that paying more tax is a good thing - and here’s how you can pave the way for that transition into VAT registration.
Look ahead and start increasing your prices. This is especially relevant if you are a B2C (consumer) business or are a business that sells to people who are not VAT registered. Most B2B (selling to businesses)...