Doing your limited company accounts can be really easy if you follow our five step approach.
Step One – Get yourself a good Cloud Accounting system
There are many systems out there varying in price. If your business is straight forward then there is no need to go for an all singing & dancing system; an entry level system will do.
We’re often asked which is the best Cloud Accounting system out there.
My answer to that is ….
“Don’t get too hung up on the system. Most of them do the same job. Find one you like at a price which suits and just get using it”.
Step Two – Planning how to extract profit
This is something which is usually discussed between you and your accountant who will suggest a monthly salary to take from the company and show you how to determine your remaining profit which you can extract as a dividend. This profit extraction discussion will also take into account pension contributions, spousal income and should consider your long term exit strategy of you have one.
It may be that your Cloud Accounting system gives you a dashboard view of the profit available to extract as dividend but if it doesn’t then you’ll just need this very simple calculation ….
Profit to extract as dividend
Profit brought forward (see your previous year’s accounts)
Profit for the year (see your current profit and loss account)
Budgeted Corporation Tax = Profit for the year x 20%
Profits available after budgeting for this year’s corporation tax
Dividend already taken in this year (see the total on your Dividends account)
Profit available to take as dividends
Whenever you do this calculation make sure you file it to prove that you did have profits available to take as dividends and do remember to prepare your dividend paperwork; see here for more on that: http://www.cheapaccounting.co.uk/library-dividend-voucher.php
Do note that the above is used as an illustration and for budgeting purposes. Your actual figures may vary. As accountants we have to put in a disclaimer!
If you’re not sure about this then you may need an accountant as getting this wrong could mean you take more money out of the company that you are allowed to and that can have serious consequences!
Step Three – Monthly Bookkeeping
Each month there will be four things to do:
- Upload your business bank statements into the Cloud Accounting system and post each item to the correct accounts heading. Once you’ve done this a couple of times it becomes very easy and good Cloud Accounting systems will remember transactions & suggest accounts postings; so the whole process gets much quicker over time.
- Record any out of pocket expenses via an app or by posting them directly into the system. It’s not unusual to shell out for a few bits and pieces from your own funds such as train tickets but the general approach should be to get a debit card on the business bank account and use that for a much of the business (not personal) expenditure as possible. If you do reimburse any expenses paid from your personal funds then pay then out of your business bank account, describing them as “Reimbursed Expenses”. You do not need to post this to the accounts as it will be picked up on the following month’s bank statement load.
- Process Payroll, prepare your payslip, pay your salary and file the Real Time Information (RTI) returns to HMRC. Late filing of these returns will result in a fine of £100 per month! Remember to take the salary out of the business bank account, describing it as “Salary” and pay it into your personal account. Again. you do not need to post this to the accounts as it will be picked up on the following month’s bank statement load.
- Declare your dividends and prepare your dividend paperwork, as mentioned above. Once you decide on your dividend you’ll just need to take the amount from your business bank account and pay it into your personal account, describing the transaction as “Dividends”. Again, you do not need to post this to the accounts as it will be picked up on the following month’s bank statement load.
Step Four – Quarterly VAT
The quarterly tasks are much easier; it’s just the VAT return which will need doing assuming of course that you’re registered for VAT. If you haven’t already done so have a look at the VAT Flat rate Scheme which will simplify the VAT accounting. Your Cloud Accounting system will prepare the VAT return for you and will file it with HMRC, assuming of course it’s correctly set up to do so. If you’re set up to pay any VAT due via direct debit the payment will come out of your bank account one calendar month and ten days after the end of your VAT period. This will appear on the next bank statement load; so you don’t have to post it to the account separately.
Step Five – Year End
If you’ve followed Steps One to Four then the year end will be simple! Any errors, disallowable costs and so on would have been picked up during the year so all of the hard work has already been done; most of the year end processing will be done by the system .