I am currently reading ADAPT  by Tim Harford.

The author isn’t an accountant so when he lists double entry bookkeeping as a perennial solution in economic evolution, comparing it to photosynthesis, pairs of eyes and mothers’ milk in biological evolution I think it’s worthy of comment!

His argument centres on the fact that there are billions of solutions to business problems some of which are only short lived, some survive longer but very few last in the long term.

Double entry bookkeeping has survived because it’s the only way of recording business transactions accurately. Don’t worry, accounts programs use double entry bookkeeping (you just don’t always see the other entry!). More importantly, the reports produced from double entry records are correct.

Using spreadsheets to record your business transactions may be easy but there is no guarantee that they are correct. Drawing up your own reports is even riskier.

Learning how to use the (appropriate) accounts program may be more difficult but it will give you accurate information as a base for your business decisions.

And don’t forget that double entry bookkeeping has been around for more than 500 years. The first spreadsheets appeared in the late 1970s!

The post Why you and your business deserve an accounts program instead of a spreadsheet appeared first on 3CA Blog.

My view before and immediately after the Budget was

SFA for SMEs!

On reflection, I may have been a little harsh.

True, the reduction in corporation tax to 20% will, as mentioned yesterday, make no difference to the vast majority of small businesses, but the announcement of the creation of an “employment allowance” for every company in the country, reducing their total employer national insurance by £2,000 each will benefit more than 450,000 small businesses.

It may even help the typical one man band business where the owner/director takes a small salary (currently about £7,600 per year) to avoid paying National Insurance and then takes dividends to increase his/her income. Unfortunately, unless the director has other taxable income some of the personal allowance (currently £8,105) is wasted. Increasing the salary to £8,105 is of no benefit because both employer’s and employee’s National Insurance have to be paid on the excess, which negates the tax savings.

The introduction of an “employment allowance” will eliminate the employer’s National Insurance and allow the salary to be increased to avoid wasting any of the personal allowance.

The saving will not be huge (probably about £200 when the new measures come into effect) but when nothing else has been given to small businesses, it should probably be gratefully received!

The post The Budget – what’s in it for small businesses, especially the one man band limited company? appeared first on 3CA Blog.

Last week a FreeAgent user asked this question

How can you lock transactions for finalised accounts to ensure no accidental mistakes?

Unfortunately you can’t. Which scares the life out of me as an accountant because of the possibility of preparing accounts which don’t ‘follow on’ from the previous year.

Companies House used to pick up this type of mistake as a matter of routine years ago, but it doesn’t seem to matter now. HMRC are a different kettle of fish entirely. I’m fairly certain that any discrepancy between last year’s closing figures and this year’s opening figures will be highlighted by HMRC’s software, which may prompt a tax investigation.

The workaround I suggest is to check the balance on account 968 Profit and Loss. It should equal the balance of the profit and loss account on the balance sheet of the last accounts prepared by your accountant (or you, if you don’t have an an accountant). Unless you’re an expert bookkeeper I would suggest checking this periodically just to make sure nothing has changed last year’s balances in FreeAgent.

P.S. If you have an accountant this will not work unless they’ve updated your FreeAgent figures when they completed your accounts!

P.P.S. I can’t guarantee this suggestion will work in every case but I’m confident it should work 99% of the time.

The post Locking transactions in FreeAgent – a workaround appeared first on 3CA Blog.

It’s sometimes always difficult for business owners to understand accounts! Comparing the FreeAgent reports to the final accounts prepared by your accountant can be a nightmare because “our accounts” have to follow different rules.

I’m often asked what’s in Other taxes and social security and Other creditors, so here is a list of the accounts which will be included under these headings.

Other taxes and social security

814     PAYE/NI

817     VAT

818     VAT Reclaimed

819     VAT Charged

Other creditors

750-*  Credit card

902     Salary and Bonuses                   (Amounts owed to directors are more likely to be added to their director’s loan account)

905     Expense Account                       (Amounts owed to directors are more likely to be added to their director’s loan account)

The post Comparing the FreeAgent reports to your accountant’s final accounts can be a nightmare because we have to follow different rules. appeared first on 3CA Blog.

Very fortunate to have such a patient, decent accountant in @StuartJones — thanks for your time this evening — #recommended

November 22, 2012 20:46 via webReplyRetweetFavorite

@natethompson

Nate Thompson

Thanks Nate. You’re very generous.

P.S. My wife thinks there are two @StuartJones on Twitter. She doesn’t know this one anyway!

The post Another recommendation. appeared first on 3CA Blog.

1. Increase your accountants’ user permission to full. FreeAgent, by default, restricts our access. We can’t make adjustments using Journal Entries and we can’t see all the company settings.
2. Complete all your details in User Details including your National Insurance number.
3. Be careful when entering Accounting Dates in Settings. FreeAgent’s notes can be confusing. Your year end will usually be the last day of the month, not the first.
4. Once the year end accounts have been finalised by your accountant don’t change anything prior to the year end date.
5. Send them a copy of the Annual Return you file with Companies House. Your accountant needs details of the directors and shareholders to complete the accounts.

The post Five ways to keep your accountant happy in FreeAgent appeared first on 3CA Blog.

End of year accounts/corporation tax return almost sorted for another year, thanks to the efficiency of @StuartJones yet again.

May 8, 2012 13:41 via Twitter for MacReplyRetweetFavorite

@lukeredpath

Luke Redpath

Thanks Luke.

The post Another recommendation from a happy client appeared first on 3CA Blog.

Like so many tax issues, a simple question produces a complicated answer! Rather than follow this route I shall simplify it by introducing the following assumptions:

1. The director wants a salary which saves the most tax and National Insurance; but
2. Wants to preserve his/her entitlement to state benefits.

To preserve your entitlement to a state pension you need a certain number of qualifying years. In 2012/13 you need to have £5,564 or more of earnings. This figure is 12 times the Lower Earnings Limit (LEL) of £464 (well nearly!).

Paying yourself a salary of this amount would mean that 2012/13 was a qualifying year and neither you nor your company would pay any tax or National Insurance.

Sadly tax isn’t that easy. If your salary is only £5,564 and you have no other income, you’re wasting £2,541 of your personal allowance. The obvious answer of paying yourself £8,105  isn’t the right answer though because the cost of the extra National Insurance will cancel out the tax savings. Neither is paying yourself £7,488 to avoid paying the National Insurance above the Secondary Threshold.

In this situation, the optimum salary is £7,605 per year (£634 per month) It will cost £16.15 in Employer’s National Insurance but it will save more than £400 in corporation tax compared to paying  the LEL of £5,564.

The post As a director, what should I pay myself in 2012/13? appeared first on 3CA Blog.

FreeAgent are the first to admit their payroll system is pretty basic. Finding an alternative isn’t easy.

No payroll provider links to FreeAgent so whichever one you choose, you’ll have to enter the payroll details manually every week/month. Third party payroll processing is expensive and you’ll still have to enter the payroll details yourself.

FreeAgent copes best when there are no changes to the payroll (new employees, leavers, bonuses, etc.). Problems can arise with incorrect PAYE Codes, no P45 and directors starting employment part way through the tax year. At the end of the tax year FreeAgent doesn’t allow you to submit your Employer Annual Return (P35, P14s and P60s) from the software. You have to register with HMRC and enter the details online.

Our solution to these problems is to offer two services:-

1. During the year we will monitor the changes to your payroll (new employees, leavers, new PAYE Codes) and make sure they have been dealt with correctly. We’ll also point out, where possible, errors in the Codes themselves. The price for this service is £80 per year.
2. At the end of the tax year we will complete your P35, P14s and P60s based on the information in FreeAgent and submit them to HMRC. We will send you copies of the forms, together with an acknowledgement from HMRC that the return was submitted on time. Late submission incurs a penalty of £100 for every month it is late. The price for this service is £80 per year.

The price for both is £150 per year.

The post FreeAgent payroll – how we can help appeared first on 3CA Blog.

Yet another copy of VAT Notes has  been released by HMRC.

I have said previously that it isn’t the most exciting read you’ll come across but HMRC do expect you to read it (even though they don’t send you a copy any more!)

The full notes are here.

The post Essential reading if you’re VAT registered – VAT Notes 1 of 2012 appeared first on 3CA Blog.