An Easy Guide To Understanding The Basics Of Bookkeeping

Bookkeeping is the process of systematically recording financial transactions, such as expense payments, invoices, asset depreciation, and financial reports of a business. It is a comprehensive and up-to-date record that provides the information for generating accounts, so it is essential that it is accurate.

Bookkeeping can get challenging when dealing with loans, taxes, assets, and investments. Particularly when the UK Government implements changes to how businesses pay taxes. This is where it is incredibly useful to have an accountant managing the books and providing financial advice for your business. Here is a simple rundown of the essentials to understanding the basics of bookkeeping.

Keep Daily Records

The best way to stay on top of your bookkeeping is to keep daily records of any and all transactions. For each one, there should be an accompanying document that confirms and describes the transaction, and matches the information in the books. This document could be a sales invoice or receipt, a supplier invoice or payment, a bank payment or a journal. This thorough evidence keeping will provide the audit trail for each transaction, in the event your books are checked in an audit, and make accurate bookkeeping much more straightforward.

Double-Entry Bookkeeping

Every transaction has two sides: a debit entry in one account and a credit entry in the other. This makes it fairly easy to spot errors, as the debit and credit entries should always balance out. If the sum of debits does not match the sum of credits, a mistake has been made.

Use An Accountants Service

Hiring an accountant can help your business in many ways, such as with loan applications, tax audits, and more. It is quite likely that if you hire an accountant to deal with your taxes, they will cost less than what you pay yourself for the same amount of time, so they can save you valuable hours, effort, and money by doing this job for you, and doing it well.

Upcoming Tax Changes In The UK

There have been a lot of changes in the past couple of years and there are more changes to come, regarding how businesses are taxed. The accountants at Suretax can help business owners in the UK prepare for the changes ahead, especially with the switch of corporation tax rate which will come into effect in April 2023, and a new incentive called “super-deduction”. UK business owners will need to have a good understanding of these changes going forward.

Switch of The Corporate Tax Rate

The Covid-19 pandemic has, of course, been a challenge for the Government, and it follows logically that changes need to be made to help the country get back on track and reinvest in social services. Part of this effort includes raising taxes.

It was announced in March 2021 that in April 2023 the corporation tax rate would increase from 19% to 25%. This tax rate hasn’t changed since the 1970s, making it an unprecedented change that could cause confusion and concern. That’s where a good accountant service can help your business and guide you through this change. There is a lot of online information available as well, to provide you with a more in-depth understanding of this change.

However, this change in tax rate will only apply to your business if it has over £50,000 in profits. If your company does not fall into this category, your corporation tax rate will remain 19%.

“Super Deduction”

This is an incentive by the UK Government to prevent companies from reducing their capital investment as a reaction to the new tax rates. Between the 1st April 2021 and the 31st March 2023, companies will be able to cut their tax bill by up to 25p for every £1 they invest. This, according to the UK Government, will ensure the UK capital allowances regime is among the most competitive in the world.

The super-deduction is “a new 130% first-year capital allowance for qualifying plant and machinery assets; and a 50% first-year allowance for qualifying special rate assets.” While this initiative is supposed to keep companies’ capital investment at the same level, it is being viewed as a welcome tax break.

Help With Your Bookkeeping

This brief overview of bookkeeping and upcoming changes to business taxation in the UK has just scratched the surface of the rules, regulations, and methods of keeping your books in order.

It is highly recommended that you speak to a well-established chartered accountancy service for advice if you are a business owner in the UK. It is the accountant’s job to analyze and understand thoroughly all UK taxation changes and provide recommendations on the most efficient approach to take with your bookkeeping.