UK Self employed Accounting Software and Self Assessment Tax Returns

Accounting Software

UK Self employed Accounting Software and Self Assessment Tax Returns

In the UK anyone receiving earned income which is not taxed under the employers PAYE system is technically self employed. Anyone who is self employed and running a business in the UK must register that business with HM Revenue and Customs within 3 months of starting that self employed business and failure to do so can lead to penalty fines.

All self employed businesses must keep records of the financial transactions and submit these accounts annually to HM Revenue and Customs in the format of the self assessment tax return which are supplementary pages included in the self employed annual tax return.

Different standards for accounting by self employed business are applicable compared to the accounting requirements of a limited liability company and consequently much simpler Accounting Software can be applied. Accounting Software for a limited company invariably requires a double entry system of accounting that produces not just a profit and loss account but also a balance sheet. The Accounting Software has to deal with business bank accounts, debtors and creditors and produce reconcilable results.

While advisable for self employed businesses to maintain a separate bank account it is not an essential requirement. The Accounting Software used by anyone self employed should keep accurate records of fixed assets although it is not essential that this Accounting Software also produces a balance sheet. With these factors in mind Accounting Software for the self employed can be much simpler and greatly advantageous if that Accounting Software also produces the numerous and sometimes onerous burden of HM Revenue and Customs tax returns and working papers.

Self Employed Accounting Software Requirements

Accounting Software for anyone Self Employed does not have to be double entry. The Accounting Software can be a single entry system which makes the value of using Accounting Software based upon excel spreadsheets feasible and due to the simplicity highly desirable. Such Accounting Software being excel based is fast and easy to use, utilising all the benefits and advantages excel offers. Accounting Software that is also highly visible at the click of a button. Accounting Software on a database hides the financial transactions that the Accounting Software has to query to retrieve the required information. It is this element of an Accounting Software database that often requires some technical accounting knowledge to operate efficiently. Accounting Software written on excel spreadsheets is, due to its visibility, much easier to use and understand and requires little or no accounting experience.

Accounting Software written on excel spreadsheets makes an ideal solution for the self employed businessman. Good financial records are the key to the success of any self employed business and especially to the value of Accounting Software. A quality Accounting Software package is an essential component of your business to identify potential problem areas and capitalise on success to drive the business forward.

Accounting Software and HM Revenue and Customs Returns

Different types of Accounting Software are available for the Self Employed and some of this software has been specifically designed to cater for the precise size and requirements of the self employed business. There are basic Accounting Software packages available for the self employed business that is not vat registered and have no employees. Standard Accounting Software packages for the self employed business that is vat registered. The vat threshold limit at which businesses are liable for vat is £61,000 up to April 2007 and subject to possible changes after that date. Advanced and more sophisticated Accounting Software for the self employed who also employ staff are available with integrated payroll software included in the Accounting Software packages.

The best Accounting Software will not only produce your self employed financial accounts but also produce the HM Revenue and Customs returns. Accounting Software that has automated the vat returns each quarter, Payroll Software that completes the time consuming P11 employee deductions working papers and simplifies the P60 year end certificates and P35 employers’ annual paye return.

And most crucially Accounting Software that automates the Self Assessment tax return.

Accounting Software and Self Assessment Tax Returns

The Self Assessment tax return is a complex document for the initiated. It doesn’t have to be, for a small business with turnover under £15,000 the self assessment tax return can be completed by entering totals of self employed sales, expenses and net profit on page one. For larger self employed businesses more complex calculations are required. Capital Allowances, balancing charges, base periods and expense analysis are beyond many self employed. Self employed businessmen are experts in their field of operations and often require help with these accounting based elements that an accountant or Accounting Software can provide.

The best Accounting Software can take the simple lists of financial transactions and by clever use of formulae built into excel spreadsheets transform the year end experience by automating the production of the self assessment tax return. It isn’t impossible, if a calculation can be made mathematically then a quality Accounting Software package can automate the process using formulae within excel to produce the calculations and offer the Self Employed businessman an automated Self Assessment Tax Return.

A function that Accounting Software can do at a fraction of the price an accountant might charge for this service. Accounting Software for the Self Employed should produce the Self Assessment tax return as the end product. The Self Assessment tax return is the Self Employed end product of his financial endeavours and therefore the Self Assessment tax return has to be the end product of any quality Accounting Software.


International Accounting – Outsourcing

International Accounting

Globalization is defined as the process of interaction and integration among the people, companies, and governments of different nations. The world is becoming more and more interconnected through globalization. Businesses are taking advantage and are generating higher profits through different opportunities presented by globalization. One of the most popular opportunities is outsourcing. Outsourcing is the delegation of some tasks or objectives to some organizational segments that belong to other entities (Arsenie-Samoil, 788). Outsourcing offers many benefits when done correctly. Many times, hiring an outsider provider of services will be cheaper than hiring a full time, in-house employee. Typical expenses like benefits, insurance, and paid-off are not paid, saving the employer money. Outsourcing also saves time because instead of employees completing trivial tasks, they can focus on more important responsibilities (Arsenie-Samoil, 791). However, there is also drawbacks to outsourcing work. Language barriers make it tougher to communicate effectively with workers. Outsourcing also means having less control over operations because there is little to no face to face interaction. The last main concern of outsourcing is the risk of security by providing business information to outsiders. As the world becomes more interconnected, it is becoming easier to find trustworthy, qualified workers in foreign countries that work for cheaper wages (Arsenie-Samoil, 791). The accounting and finance industry has been at the front of this trend, and it is not only the United States involved, but the whole world. A 2010 report showed that accounting and finance made up 10% of the worldwide business process outsourcing market, which was over $975 billion in total (Khadem 2012).

One country that has embraced the accounting outsourcing trend is Australia. CPA Australia surveyed 227 of its members in 2010 and their results showed that 11.7% of employers sent accounting/finance work offshore. Adam Johnston and Michael Adams operate an accounting firm in Australia which has been successful in the past couple years. They were able to gain 15 new clients and increase fees by 30% during the year 2012. This was very impressive considering the economic climate they were dealing with at the time and they credited their success to outsourcing. Using Bank Office Shared Services (BOSS), Johnston and Adams located accountants looking for work, mainly in India and the Philippines. Now, they have a personal, fully qualified accountant located in India. Using cloud services, an accountant in India can have access to servers and software located in Australia. Another success story from Australia is Mark Cottle, the director of the startup Frontline Accounting. Using a similar service, Cottle found a CPA located in Manila. Cottle says he can employ 7 or 8 CPAs in Manila for the same price it would take him to hire 1 in Australia (Khadem 2012).

The United States is also outsourcing accounting work offshores, mainly to India. According to M.G. Fennema, an accounting professor at Florida State University, 5% of US audit work in 2012 was done in India. This is up from an estimated 1%-2% in 2007. The big 4 (Deloitte, KPMG, Ernst&Young, and Pricewaterhouse Coopers) all outsource work to India (Aubin 2012). In 2012, the 4 of them combined to employ 22,000 workers in India. It is a popular location to outsource to because workers there are paid much less than workers in the US. In India, the starting salary of an accountant is somewhere around $10,000, while the same employee in the US would make somewhere around 5 times that (Aubin 2012). While some may be concerned the quality of work drops when it is outsourced offshore, the big 4 firms all ensure that offshore work meets the same quality as domestic work and employees receive consistent training to the employees in the US (Aubin 2012).

The practice of outsourcing is more widespread than ever, but a company’s decision to outsource should still be very well planned. Management should thoroughly understand the practices and procedures of their client. However, with technology and innovation constantly improving, businesses can now connect to India and other regions in a blink of an eye. This allows the search for employees to be easier and more efficient than ever before. When done correctly, outsourcing can be very valuable to businesses in many industries, especially accounting.

Accounting Financial Statements – The Balance Sheet

The Balance Sheet

The balance sheet, also called the statement of financial position, contains three items: assets, liabilities, and stockholders’ equity. It is dated at the moment in time when the accounting period ends. The accounting equation that is a big part of the financial statements is: assets equal liabilities plus stockholders’ equity. When working with a balance sheet: the total assets must equal the total liabilities and equity.

The first part of the balance sheet is assets. There are two main categories of assets: currents and long-term assets. Current assets are expected to be converted to cash in the next twelve months or one business operating cycle (if longer than a year). Cash is the most liquidated asset. Short-term investments are stocks and bonds that a company intends to sell within the next year. Accounts receivable are the amounts the company expects to collect from customers. Notes receivable are amounts that the company expects to collect from a customer who signed a promissory note. A company also includes inventory, which is a current asset, into the balance sheet. Prepaid expenses are also a part of the asset side of the balance sheet because the company will benefit from them in the future.

Long-term assets include plant, property, and equipment, intangibles, and investments. Plant, property, and equipment (PPE) include land, buildings, computers, store fixtures, etc. Accumulated depreciation is also included on the balance in the long-term assets area. It is the amount of depreciation from PPE at the end of the year. It is subtracted from the cost of PPE to determine its book value. Intangibles are assets with no physical form such as patents. Investments are long-term assets because the company does not expect to sell them within the next year.

The second part of the balance sheet is liabilities. Liabilities are also split into two categories: current and long-term liabilities. Current liabilities are debts paid within one year or one operating cycle. Accounts payable is the company promises to pay a debt arising from a credit purchase. Income taxes payable are tax debts owed to the government. Short-term borrowings are notes payable that the company has promised to pay back within one year. Salaries and wages payable are amounts owed to employees. Long-Term liabilities are payable after one year.

The last part of the balance sheet is stockholders’ equity. The Stockholders’ equity is assets minus liabilities. There are two parts to stockholders’ equity: paid-in capital and retained earnings. Paid-in capital is the amount the stockholders have invested in that company. The basic part of paid-in capital is common stock where a company issues stock to the stockholders as evidence of their ownership. Retained earnings are the amount earned by income-producing activities.

I hope this helped explain the parts of the balance sheet.

Cash Basis Or Accrual Basis Accounting

Cash Basis Or Accrual Basis Accounting

I have many clients that are unsure about what to use for their business bookkeeping a cash basis or an accrual basis standard of accounting. The only difference from these too types are when the money received or payment made are credited or deducted from your accounts. In cash basis you deduct or credit immediately once the payment is made or received in accrual it is only deducted or credited with the service is completed or the payment is actually paid out.

Here are a few examples first lets start with credits. Let’s say a wedding photographer books a wedding and takes 50% up front a $1000.00 deposit but the wedding is not for another 8 months. If the photographer was using cash basis accounting the $1000.00 would be counted on their books as soon as the deposit was received and the remaining balance when it is received in 8 months. If the same photographer was using accrual basis accounting then he would not count the deposit in his books until the services where completed even though he took the deposit, so in 8 months he would post $2000 in his books.

The same applies for payments, lets say the photographer in our last example buys a new camera and uses credit to buy it and pays off the camera in 2 months. With cash basis accounting he debits the cost of the camera in his books immediately when the purchase is made. If the photographer is using accrual basis accounting he debits the cost of the camera in two months when he actually makes the payment.

In conclusion both methods are going to result in the same outcome. With accrual basis you are going to have a better picture of your business income and debts but your cash reserves will not be as clear. With Cash basis you have a clearer picture of cash reserves but overall profitability of your business over time may not be as clear.

Accounting Principles

Generally accepted accounting principles (GAAP) are used to account for a company’s transactions, assets, losses and other accounts, as well as to prepare financial statements and report finances. The purpose of GAAP is to uphold a certain accounting standard and to solidify an acceptable way of preparing financial statements. GAAP allows an entity to achieve these basic goals via established accounting principles.

The History Of GAAP

Part code of ethics and part industry guidelines, GAAP is set by the Financial Accounting Standards board (est. 1973) and embraced by many prominent accounting entities in the US. Companies are expected to follow the GAAP standards to ensure consistency in the industry, and a company should prepare all financial data according to the principles.

The purpose of generally accepted accounting principles is to eliminate misuse of accounting procedures and systems, correct abuses and incorporate regulations. While these generally accepted accounting principles are specific to the United States, many countries have their own version of GAAP some quite similar in scope and goals while other countries have significant variations from the US standards of accounting.

What Are The Main Principles Of GAAP?

GAAP is made up of several different kinds of ethical and best practice concepts, all based on certain assumptions. There should be the assumption that the business is its own entity and that the business will not attempt liquidation or sellout. It also expects that the currency will remain stable. Set financial principles are in effect, including cost principle, revenue principle, matching principle and disclosure principle. These principles are based on sound financial and accounting practices that reflect a standard of consistency, regularity and proper business performances.

There are also constraints in place, and these include the objectivity principle (where company financial statements are produced objectively), materiality principle (where all significant items are reported), consistency principle (sticking to the same methods each year) and prudent principle (where the most conservative approach is taken).

It is possible for a company to use non-GAAP financial measures, but they are required to disclose this information to investors and in other public matters so that proper comparisons can be made. There are other standardizations that financial statements can be prepared by under certain conditions.