What is Trading?
Before looking at the necessary accounting aspects, just a word of caution for those that may think they are not. HMRC has quite strict rules as to what constitutes a trade, and whether or not you need to disclose this to them. If you are interested check out their website , but essentially you could be trading if there is a profit motive in the transaction or it is done regularly enough. See this article from the Guardian which highlights those who trade on ebay. With the New Year upon us and you are thinking of starting your own business you may wish to see my earlier blogs Assuming that you have consciously decided to trade and have not done so by accident, lets look at some of the things you now need to consider.
Registering for VAT or not?
This is a thorny question, and you really need to think about a number of things this is something we at Sherlocks can help you with.
- Are your customers registered for VAT? If not then you will be increasing your prices to them by 20%
- Do you have a large capital outlay to start with that will have a large element of VAT attached?
- Are you importing from the EU and the imports eg stock for sale is in excess of the current limit of £85,000
- Have you been lucky enough to get a contract that you will be fulfilling shortly that will take your last 12 months sales over the £ 85,000 limit.
Interestingly it is actually possible to register for VAT and then de-register if your sales do not meet the current de-registration level of £83,000. The best thing to do is seek advice.
Opening a business bank account
Now you may have done this already, as we are well on the way to getting the business up and running, however most people tend to pay for the early costs out of their personal bank account, this is fine just keep your receipts and don’t muddle them up with your personal ones. The best advice here is to shop around and don’t automatically go with the bank that has your personal account. You may discover better service elsewhere. There are a number of banks aggressively targeting business banking at the moment and offering good deals and shock horror going back to a personal relationship manager.
From an accountants point of view it is much tidier if there is a business bank account but not essential. You do need to be ordered though otherwise this can affect your accountants charges. Sorting out the business expenses can be a time consuming and thankless task.
So you have done some work for someone and now you need to give them an invoice. Whether they are going to pay you later or they are paying you straight away, you need to give an invoice and in many ways the sooner the better.
Some small businesses prefer to invoice monthly. If you chose to do this make sure you get your invoice to the company before they “close” the bought ledger for the month otherwise you might find payments being delayed. It might be a good idea to do all the invoicing around the 25th of the month.
Make sure your invoices are numbered!!! If you don’t want to start from 1 make up a number to start from, but keep a numerical sequence. It’s fine to do them in word or from an invoice pad…… We’ll talk about accounting packages next time…… and remember don’t be afraid to ask…….Sherlocks