The first thing to do is not to become too carried away when those invoices are finally paid. It may look like a lot of money compared to your previous salary when you had a regular job, but those invoices are gross revenues.
Even though that seems mind-numbingly obvious, many new businesses lose ground as soon as they start because not enough provision is made for payments to the taxman and National Insurance. Some even think they can get away without paying the full amount of tax or NI and come up with all sorts of ridiculous ways to evade it.
This is stupid and leads to bad business and possible prosecution. Al Capone tried to get away with it and didn’t; neither will you. You may think you are an individual entity now and not beholden to any employer, but you are also beholden to society and like everybody else you have to pay your way.
So, start saving money as soon as you receive payment for your first invoice. Even though it’s your company, it’s not your money. You still have to use appropriate channels to pay yourself. You are responsible for everything and never let this elude you.
So, decide on a salary you are going to pay yourself and then you can calculate how much tax and NI you have to pay. Either work this out on tables supplied by the Revenue or ask your accountant how to do it. I can’t impress on you how important this is and how early you should adopt best practices. You should bookmark this link and refer to it as the tax year goes on.
Enough already of what you have to PAY, let’s now look at what you can claim for. This is a tricky area and one that can be confusing to new limited companies. Whether these expenses are start-up costs, mobile phone bills, entertainment and travel or even a new laptop, this is a crucial aspect of managing costs.
Beware, it is extremely boring to save receipts and input them into your business. But more pertinently it is MONEY. If somebody left a pile of banknotes that were owed to you on your desk, would you ignore them because you had to manage them? Of course not, so get on with it.
This link is an excellent page that goes into detail about what you can claim for and will be an invaluable resource when dealing with profit/loss sheets. Furthermore when you see what is coming in, being claimed for and going out it will help streamline your business and its possible expansion.
So, that’s it for part four of this series and only two more to go. Next week I will go into timings and when you have to pay your dues to the taxman and National Insurance as well as paying yourself dividends once you company is profitable.