Accounts, tax, bank accounts - eeek, what do you need to know as a wedding business?

In this session, I interviewed my own accountant, Emma Bail, from Evolve accounting to ask her all the ins and outs of what we need to know as small business owners. The little questions that sometimes we just don't know the answer to. To warn you, this was recorded three years ago, so the sound quality isn't as good as usual, but the information makes it worthwhile. So just bear.

If you need help to grow your wedding business with access to my knowledge and my expert training sessions, then do check out my Wedding Pro member's lounge. At only 20 pound a month is an absolute bargain and really great value to help you always stay ahead of your game. The link is in the show notes. Enjoy today's episode back from 2019 where I talk to my accountant, Emma.

I'm Becca Pountney, wedding business marketing expert, speaker and blogger, and you are listening to The Wedding Pros who are Ready to Grow podcast. I'm here to share with you actionable tips, strategies, and real life examples to help you take your wedding business to the next level. If you are an ambitious wedding business owner that wants to take your passion and use it to build a profitable, sustainable business doing what you love, then you're in the right place.

Let's get going with today's episode. Hi Emma. Thank you so much for coming and joining us in the members club this morning. We're really excited, um, to have you. I know people have been looking forward to the session a lot, so I just wanna be helpful if you just introduce yourself, tell us who you are, what you do, where you work.

So, um, a lot of our clients are, um, mums who have, uh, chosen to, to start their own businesses after having their children or people who have chosen to move away from more traditional work and, and freelance or have their own small. Fab

So, First question, let's keep it really basic to start with. What records should we be keeping, if any at all?

So anything that you purchased directly related to your business, that could be, you know, if you make chairs, that would be the wood and the nails that you buy to make your chairs. If you provide a more service type business, then that could be your laptop, stationary maybe software, things like that. So anything that's related directly to your business. You need to keep your receipts, um, either electronically or in paper form.

Um, hmrc like you to keep those for seven years so that you can prove what you've earnt and what you've, what you've bought. And there's lots of different ways that you can keep those records.

You can either have a sort of very paper based way of doing that, or you can be a bit more clever about it and have a more electronic, But the most important thing is to keep for everything that you purchase and everything you sell, to keep some sort of record receipt hard, copy yourself to prove that that transaction happened.

Those costs of those sales would give you gross profit. Then you take away your overheads. Overheads are things like rent rates, um, you know, electricity. The office running costs, so your computers, your software, your stationary, all of those things, and that brings you down to your net profit. So your gross profit is everything that directly relates to your sale. Net. Net profit includes those overheads, which are the overrunning costs of your business.

So the theory is if you have no sales, you would have no cost of sale, but you would still have those overheads because you'd still need to pay your, you know, your rent and your electric and your overheads. And that's how it works.

Perhaps, but that the gross profit margin goes down. And so actually it, they might have lost control of their costs. Um, so suddenly they're, because they're really busy and they're making loads of extra sales, they're not paying attention to where they're buying their wood and nails from, and those costs are increasing. So for every pound of sale, they're not getting the same amount of gross profit. So that's a really important.

, but that net profit's really important as well because that's showing where your overheads are going. Is your electricity going up? Are you spending too much money on stationary and it's that net profit that's gonna give you a better indicator of how much tax you're gonna pay. Okay,

Um, incomes together, calculate how much tax you need to pay on the total income, then with less any tax that you've already had deducted. And if you're on a PAYE scheme, if you are, if you are in employment somewhere else, they may well have deducted tax and then it'll be that balance at the end that you have to pay. So, effectively, you are just paying tax on the extra income you've received from your.

. Becca: Okay. And if we have an accountant, presumably they help us or that, I mean, they, I mean from a very practical point of view what you need to do is you, you, you, you'll keep your business records as we've just talked about, but you'll also give your accountant, hopefully me, your, your P 60 or your P 45. So your P 60 is a document your employer gives you at the end of the year, which is a total of everything you've earned and anything that they've deducted in tax.

P 45 is if you've left a, um, an employer during the year, they'll give you your P 45 when you leave, and that again, will be a summary of how much they paid you and how much tax is deducted. So you'd give those documents along with your business records to your accountant, and then the, the calculation that I've just described would, would be done to make sure you're not paying any more tax than you have. . Becca: Perfect. Thank you. That's really helpful.

Okay, so we talked at the beginning about the fact we need to keep records. So have you got any practical tips about how should, how should we keep our records? How should we keep track of spreadsheet? What should we be doing? It, it, it, there, there's two things that drive this. How techy you are and, and how big your business is.

So if you are a fairly low tech person, you're not really into spreadsheets or softwares, but your business is quite small, then you would, you would completely get away with a folder. Um, with some dividers in it. And you'd have one section for your bank statements, one section for records of your income and one section for, you know, all your receipts for your expenses. And I've got, I would say probably 40, 50% of my clients work on that basis and it works really well.

And once a year they come to my office with their folder with everything in it, and then we do the techy stuff, we enter it into software for them and do the bookkeeping. And that works really. If your business is a bit bigger and you have a higher number of transactions, you might find that a bit difficult to keep track of, um, you might want to then move to a spreadsheet based, uh, bookkeeping system.

So, and there's lots of different ways we can do it, and I can, I provide templates to my clients for those who want one. But really you still need to keep that the paperwork that we've talked about in the folder, but then you'd also enter that information onto a spreadsheet, all of your sales, less all of your costs. The good way about, the good thing about doing that is then you yourself can keep a bit of a track throughout the year of how much profit you're making.

It's not gonna be the exact accounting profit that your accountant's gonna come up to at the end of the year because they'll do some accounting adjustments, but it'll give you a rough idea so you'll know if. Any money and you'll be able to have roughly a bit of an idea how much tax you need to be putting away. So spreadsheets for that smaller business can, but, but that's maybe a little bit too big to just have a paper based system works really well.

As you get bigger, you might start to think about, um, software. So the more transactions you've got, the more kind of unwieldy or gets and you can end up with, you know, I've got clients who sort of turn up quite often builders turn up with a bin bag full of receipts. Um, you know, and it can take me a day to sort them out. Those sorts of clients really should be doing their, their, their record keeping on, on some sort of software. Um, and again, it really depends how techy you are.

There's some really complicated softwares out there. There's some really user friendly stuff. Um, but really it's about inputting that information into the software and then your accountant will be able to log in and kind of police that and check that you're doing everything right and pull the information off that you need. and which

You can access it on your phone, um, you can access it on your laptop. Um, as your accountant, I can log in and access it so we can have a phone conversation. We're both looking at the numbers together and you can get lots of reports off it. Um, so I really like Xero from that point of view. It is quite user friendly.

and I'm actually just about to become a Xero partner, which means I'm doing some extra training with Xero to make sure I'm, you know, extra knowledgeable in that particular software because I really like it. But that, that's just a personal preference. QuickBooks is a good, it's a really good bit Kit as well, and works very similarly to Xero. Um, it's been around on the market a lot longer than Xero. And it worked in a very similar way. It is web based, so you can log onto it wherever you are.

I could log onto it too as your accountant and we can both look at it together. Um, How you choose between the two, it kind of then becomes a little bit more business specific. Um, I personally think the Xero stock management system is a little bit better than zero. So if you were my client and you had a lot of stock, maybe you were a wedding dress shop, you know, I might say maybe zero's gonna work for you a little bit better. But that, again, that's more of a personal preference.

So, you know, we'd look at those two bits of software together. There's also some much cheaper software out there. There's things like kpm and you know, various different softwares like that. If you want to go a little bit lower cost, and if your business isn't too complicated, if you haven't got high levels of stock, if you haven't got, you know, those sort of, um, more complicated, uh, transactions that you need to record, then you might not.

Feel that you need to invest in, in them in Xero or in QuickBooks. And also with a lot of these softwares, they have different levels. So they'll, most of them will have a basic free or very cheap, um, version, and then a sort of mid range one, which most people use, and then a sort of more expensive, much more complex one if your, if your business needs it. Um, so it's really about sort of shopping round, figuring out what it is that you need and seeing which of those softwares fit in with you.

Um, I think that you are always gonna pay an accountant a lot more money for that type of service because, I have to spend a day on the floor dusting concrete off the seats and getting them in an order before I can even start doing my job. But I think if you are a business owner yourself, if you are, if you're keeping records in that way, you get to the end of the year and you will genuinely have no idea whether or not your business has been successful.

You'll genuinely not know have I made a profit of a loss or, you know, So I. I do worry about businesses that sort of keep their records like that. It always just feels a bit that they're running those businesses on instinct. Um, rather those businesses that use software or um, you know, a spreadsheet tend to have a lot better track of kind of where they are with their business throughout the year. Perfect.

Um, you know, do I understand the tax rules? Do I understand what I can and cannot claim for? And if, honestly, honestly, the answer is yes then, then yeah, do it. But what I do see quite often, I'm actually working on, on a piece of client work at the moment, and he. He did his, his own tax return for the last two years, and then his tax bills are incredibly high and he's paid them, but he's sort of had this niggling feeling that it, it's not right somehow.

And so he's asked me to go back over the last two years and redone it, and I've just saved him about 800 pounds worth of tax. Um, You know, so it's, it, it's one of those kind of, it, it's a risk. Um, I've also got another client at the moment who did her own tax return, um, and has now come to me because she's been compliance checked by HMRC and they're trolling back through the last seven years of her records, um, which is incredibly stressful for her.

So the answer is, Yes, you absolutely can do it, but I think, you know, with anything in life, only do it if you've got the competency to do it. You know, for the same reason why I wouldn't do my own website, because I'm just not technically minded enough to be able to do that. Um, but there are other things that I do do myself because I, because I can.

So you are statistically a little bit more likely to be compliance checked because HMRC know that if an accountant's done it, it's more likely to be correct. So they, they tend to focus a little bit more on people that have done it themselves. That doesn't. If you have an accountant, you definitely won't be compliance checked. But it also means, you know, when I'm doing accounts for clients, I'm thinking about several things at the same time.

Firstly, about getting the accounts right, um, and making sure that we are compliant with rules. Secondly, making sure that I'm minimizing the tax liability for the client, because at the end of the day that that's the name of the game. But, but doing that legally and doing that, using the provision that we have available to us. And thirdly I've always got in the back of my. If a hm, r c inspector was here looking at this right now, do we have that audit trail?

You know, can we prove, are we demonstrating that these are accurate accounts? Um, and I think it's really important that all those sort of boxes are ticked as your, as you're going through your year end. Perfect.

Um, our most, you know, our, I think our biggest client pays something like five grand in the year, but they're a big limited company, you know, with payroll and all sorts of things, and we've got lots of clients in between. You know, for the average small, um, you know, sole trader running some sort of business from home, you're going to be typically looking between 115 and 300 pounds.

You know, depending, um, and I think then you've got a way in your mind is, you know, what are you getting for that money? Um, you know, firstly I think you're certainly getting that piece of mind that, you know it's correct. But then thinking about that piece of client work, I've been working, you know, on the last couple of days while he has had to pay me some money to do the work, he's actually saved six, 700 quid in Tax as a result.

Um, so no, I don't, I don't think an accountant is, is particularly, um, expensive. I think that there, it depends who you use. There are lots of different types of accountants. So there are some very large accountancy firms out there who are geared for, towards the very large client. and their fees will be higher. And you do find, as a small sole trader, if you go to the very large practices, you end up sort of paying big practice fees, but you are paying for the luxury.

And they have a receptionist, you know, they have the fancy paper. They, you know, they've got their range rovers parked in the, in the, in the car park, outside, you know, they've got somebody else from the phone and all that sort of thing. If you go to a smaller practice, either just a single, um, so trader, you know, some, some accountants, but, you know, run their businesses from their home, which is how I started, you know, we've got premises now. But you know, I answer my own phone.

I post my own letters, so, you know, we don't have those overheads. So, you know, I think sort of it's about finding the accountant that matches you. So I think small, small accountants tend to work better for small businesses and big accountants tend to work better for, for big businesses. Okay. And I think

You know, if you are buying, you know, the, the pen and the, and the notepad that I've got in front of me at the moment, you know, that's a stationary cost for my business. That's all pretty obvious stuff. There are some things that people tried to claim, which are just absolutely outrageous. I mean, a couple of couple of years ago, a client who works from home wanted to expense all of his new patio furniture. The argument was that, Oh, I sometimes sit outside in my garden and do my work.

You know, the answer to that is really, you know, it. Could you have that conversation? If Hmrc a tax inspector was sitting in front of you, could you honestly, with a straight face argue that, is a genuine business expense and the answer is probably not. So most of it's pretty obvious. Um, you know, have you bought it for your business? Yes. Then it almost certainly is a business expense where you get some wooly areas where people aren't really quite sure.

It's things like phone and mileage and, you know, sometimes people ask me things like, Well, what about my glasses? , you know, because I need my glasses to work on the computer. So are they a taxable business expense? And the answer is no. Um, because they're for you personally, for, they're for your eyes. You haven't bought them to actually trade in your business. Um, And there are areas, of course, like, um, mobile phones. So yes, of course you need your mobile phone to run your business.

Um, if that is your own mobile phone and you use it for business and personal, then we'll take a percentage. Normally 50% for your business, 50% for personal. If you're using your car, um, for your business, then record your mileage and we'll do a mileage calculation based on that. Um, So, yeah, expenses, really the, the key question is, is it exclusively and holy for your

If it's just clothes, then no. And there was a, there was an interesting case a couple of years ago. With HMRC, it was a, it was a lawyer and she wanted to claim her suits that she wore for work as a tax deductible expense, and her argument was, well, You know, in everyday life I wouldn't wear a black smart suit. I'd be in my jeans and t-shirt. I only buy and wear black smart suits for work, therefore it's work expense and, and they took it to court and HMRC won..

And what the judge, actually, he used a lovely phrase, which was, you have to clothe your naked body. And that was the ruling by the judge is that, you know, you'd. You have to wear clothes in the course of your day. Okay. You're choosing a particular style of clothes to, to match your job, but you do still actually need to wear clothes. Um, so on that basis, no. Your black t-shirt trousers, things like that are not tax deductable. Not

And so on that basis, we work out a percentage. So if you were to say to me, Well, I, it's about half and half, then that's what we, that's what we do. 50 50, um, split between business and work and home.

That's good to know. However, when we come to calculate your tax, that cost cannot be included in the tax calculation. Um, the client entertaining just isn't the tax deductible expense.

So, yeah, it, it's not, I think, There's a bit of a myth out there that it's tax deductible. So people say, Oh, I can spend this cuz it's on the tax line and that isn't true. So it's worth kind of thinking about how much you're spending and keeping in control on that

It's slightly different if you're a limited company, but I mean from your, But if you're gonna keep all your receipts and all your records and record all of this anyway. I mean, you might as well, but it, it doesn't, you know, HMRC not as important, be compliant. If you had to be compliance checked, HMC would not want to look at the receipts for that because we're not including that in the tax calculation anyway. Perfect.

The better way to do it would be to actually calculate the cost. So we would take, if you are renting your property, the rent, if. I, if you own it, then we take the interest element of your mortgage plus all the running cost of your house. So electric, gas, water, all of those overheads.

And then we would allocate, so we would work out what percentage that room is of your house and we'd, we'd work out a working from home allowance and that can actually work out quite beneficial if we end up coming up with a cost of say, 700 pound. If that 700 pound is tax deductible, that reduces your net profit by 700 pound and therefore reduces your tax liability. So it's worth doing. Yeah, that is worth

If you are using a spreadsheet, then put a tab on your spreadsheet and exactly the same date, Purpose of my, a purpose of. Um, postcodes and number of miles. It's the round trip. Um, if you're using software, quite a lot of softwares actually provide, um, a method. So, um, QuickBooks, certainly the self-employed part, has a, has a mileage log in there that you can record, but certainly keep, keep records of that mileage because again, it's all, it's all tax deductible.

The way you pay yourself, the way you take money out of a limited company is very different than how you take your money out of a, of a sole trader. And there are some tax benefits. You will save tax, you'll pay less tax, but. You'll pay your accountant quite a lot more money for doing all of that for you. You'll have payroll costs and accountancy fees because there's a lot more work involved.

So you need to find that sweet spot where the tax that you are saving outstrips the extra money that you're paying your accountant. And usually, typically that's around that 30 K profit. Profit. But there are lots of other reasons why you become a limited company that's got nothing to do with tax and I'd certainly, I'm not really an advocate of only making that decision based for just to save tax and for no other reason. And you need to think about what's right for your business.

So, um, for some, for certain industries, being a limited company, um, it's good for image. So some of your clients might prefer to work for you if you're work with you, if you're a limited company, because it, it makes them feel a little bit more secure that you are a proper business. It, it's all about perception. It's not a real thing, but you know, for, you know, you certain industries certainly find that easier.

Some people feel a little bit more protected working in that limited company structure. Um, so you do have that limited liability. So if you are to take, um, finance or loans out in the name of your business, that does protect your personal assets in a way that you are not protected so much if you take out business loans in your own name. But I think. There is a bit of a myth out there of just how much protection that you get as a limited company.

It doesn't protect you from anything and everything, so you are still personally liable. You know, you'll see on the news every now and again, directors going to prison for, um, you know, large companies going to prison for, for negligence.

You know, you are still responsible for the work that you do, so you can't provide company so that there's lots and lots of reasons why you might want to, and I think the first step is always to sit and look at the numbers with your accountant and talk through all the reasons you know, why you would wanna do that.

If you are a business owner, if you work away overnight. Obviously then that's a, that's for your business. So we go back to that wholly and exclusively for your business, and then your evening meal and your breakfast becomes tax deductible and your overnight stay. Yes. And your overnight stay. Absolutely. Your, your hotel costs. Cool. Okay, next. Oh, sorry, sorry. I was gonna say there isn't a limit on that interestingly. So, um, the wording is something like, you know, reasonable.

Um, and HMRC always makes me a bit nervous when they say things like that because this objective, you know, I might feel that reasonable would be, you know, a five star hotel and a, you know, a slap up, you know, 150 pound meal. Hmrc might look at that and not feel quite the same way. So I think it's always been trying to be a little bit sensible about, about what you do with that.

I, you know, I think those clients that come in in these early months, are usually. Less stressed, um, a little bit more organized. We can do your tax return now-ish or over the summer. I can tell you how much a tax bill is. You still don't need to pay it until January, but at least then, you know, you can tax plan and you know what, uh, what expense to expect.

Um, I, you know, seen, had very stressed clients in my office before now who've you've chosen to leave it until that December and January been given a tax bill that they weren't perhaps expecting. And then they've got no time to save for that, and they're in the middle of Christmas and all that time when it's really expensive. So I personally get it, get it done early, um, but then don't actually pay it until the January when it's due.

They're really aware that they're running. Time and it just doesn't, it's not very comfortable position. So yeah, get it, get it done. Get outta the way. Everybody else like running around like headless chickens in January. You can just sit back and be really smart knowing that you are done.

There's a whole host of reasons, but, um, whoever that is, if you want to give a ring, Happy to have a look at it for you.

So the VAT mtd making tax digital for that has come in now. Um, and that's for all businesses that have a turnover of over 85,000 pounds. So for, for a lot of people it doesn't really affect them. For my clients who do have businesses that. The changes that I've got, I'm thinking of one client, particularly, they keep all their records on a spreadsheet. Um, and that causes, poses a problem in terms of how making touch digital works.

Um, in that, really what they need to be doing is putting the information directly into a software, and I'm uploading it directly, um, into hmrc. There are some solutions like bridging software and things like that, which I don't think today's really the time to look at that, but it's, um, you know, it, it, it is changing the way that people are working.

For a lot of people, it doesn't really matter if you're already somebody that uses Zero or QuickBooks or any of the other, um, MTD compliance softwares. It kind of doesn't really matter. It's really more a thing for your accountant will just slightly change the way that they do things if you are a business. And, and it's, it's surprising they do exist.

I have a client, a new client who's, um, turnover is over a hundred thousand pounds and they're doing everything handwritten on a notepad, which to me just blows my mind anyway. And, um, That, uh, you know, and they are not making tax digital compliant for their VAT purposes. So we are having, they're having to go through a massive learning curve at the moment where we're moving them onto software. They're having to learn how to use it.

Everything that they're doing is, is different, and that's really hard for them. Um, so, so it is kind of, it's a bit hard on some people. For most people, the transition's been quite easy. Making tax. Digital is going to be rolled out sort of to everybody, so it will impact, um, self-assessment people, soul traders as well. I think what hm, r c are doing is bringing it for the over 85 K. Um, V a t clients at the moment, bringing that in, ironing out any problems.

You know, those are the clients that are more likely to be on software at this point anyway. Um, and then they'll roll it out to, to you guys, I guess. Um, and they're looking at around 2020. But I don't know, you know, within the accountancy community there's a lot of talk of whether or not that will be delayed and how that's gonna work. And I think a lot of it's kind of up in the air.

The key thing, I think, really, is that your accountant should be working with you as you get closer to that, you know, and informing you and letting you know if you, if you need to make any changes.

But, you know, sometimes we get to clients who literally, they've lost all of their receipts or half of their receipts or something, and then it, it, it becomes a little bit trickier then, and then we have to declare to HMRC that's that some of it's estimated, so as much as you can keep those records. But yeah, of course, you know, I've done it. I've lost receipts before. Now, you know, it happens. Um,

And then I always like to get people in, really come and have a cup of tea and sitting out, I've just been decorating our office so you can come and admire on your window blinds and, um, you know, just sort of get to know each other and work out a quote and work out how that's gonna, you know, what service we can provide going forward. It's, we try and keep it quite kind of relaxed and easy. Perfect.

In the meantime, go sort out your accounts and I'll see you soon.