Landlords and property agents are experts in helping people find their dream home. However, dealing with bookkeeping may leave you flustered or just downright confused. With the tax year drawing closer, we’ve decided to break down some common terminology and explain how the end of tax yea works.
If you’re an owner of a limited company, you will separate your personal and business finances. Limited companies do not pay income tax or national insurance, but you will need to pay corporation tax. You will also need to complete a corporate tax return (also known as a CT600).
Additionally, if you have employees working for you or pay yourself a salary, you will need to set up a ‘Pay As You Earn’ (PAYE) account. You can head over to PAYE Online to register. Once you’ve set it up it will subtract national insurance and income tax from the payments.
Important Dates for 2020
6th April 2020 – The first day of the 2020/21 new tax year.
31st May 2020 – Deadline to give your employees copies of their 2019/20 P60 documents.
6th July 2020 – Deadline for agreeing on payment settlements agreements for 2018/19.
5th April 2021 – End of tax year 2020-21.
For teams looking to bring their accounting in-house, here’s an introductory guide to bookkeeping and accounting.
What’s the difference between bookkeeping and accounting?
You can define bookkeeping as recording, storing and measuring financial transactions for businesses. It is classed as administrative work. On the other hand, accounting may involve handling data but also involves financial analysis and consultation.
What are business accounts?
The term ‘accounts’ within accounting doesn’t refer to a bank account. Instead, it refers to various types of records.
These are the 5 main account types:
- Revenue – money earned by the business
- Expenses – outgoing transactions that pay for an item or service (e.g. salaries)
- Assets – resources and cash owned by the business (e.g. debtors)
- Liabilities – debts owed by the business (e.g. creditors)
- Equity – the value of an ownership interest, minus liabilities (e.g. shares)
By setting up these categories, you can easily filter down your records to understand your finances.
Single-entry or double-entry bookkeeping?
There are two different ways to record your transactions. In single-entry bookkeeping, you only enter a figure once. This method can work well for smaller businesses.
Alternatively, you can use double-entry bookkeeping. This method is more favoured in the accounting world as it minimises the risk of errors. As the name implies, you enter each transaction twice in the form of a debit and a credit. Commonly, accounting software (such as Sage) uses double-entry bookkeeping.
When you are making entries to your books, it’s incredibly important to make sure you record amounts accurately. Any mistakes could lead to your books not balancing.
You will need to categorise each entry based on its account. This will help you review your books to close them. How you choose to label your entries are up to you but it’s wise to title them so you can recognise them in the future.
Balancing Your Books
The reason why double-entry bookkeeping is so popular is that it helps with balancing your books. When you come to review your figures on a quarterly, monthly or yearly period, the sum of your credits and debits should match.
The ‘general ledger’ is the main accounting record for your business. At the end of the period, you will need calculate your prepayments and accruals and make any necessary adjustments to the balances of each account. When you add together the totals of all the accounts you should find that the below equation is correct.
Assets = Liabilities + Equity
If this is the case then, congrats! You’ve successfully balanced your account. If you find that the above equation does not work out, then you will need to return to your books to identify the anomaly.
Creating Financial Reports
Next, you’ll need to take this information and use it to form financial reports. This will give you a better idea of your business’ financial health. Understanding your income and expenditure will help you plan for the period ahead.
Profit and Loss (P&L) Statement – A profit and loss statement summarises the costs, expenses and revenues of a set period. This statement can be helpful as it shows how successful the business has been at creating a profit. It may also help you create forecasts for the next period.
Balance Sheet – A balance sheet shows your businesses assets, liabilities and equities. It helps you to evaluate your business health. Essentially, this explains whether your business can grow or needs to reserve cash.
Cash Flow Statement – A cash flow statement is like a P&L except it does not account for non-cash items. It can help show which areas are creating profit and your businesses ability to pay its bills.
Making Tax Digital (MTD)
In April 2019, the government launched an initiative to make tax administration more effective and efficient for taxpayers. All landlords and businesses are required to record their taxes digitally, using online software or app. This project will help save time, reduce errors and make the end of tax year far easier.
This initiative is compulsory and you will need to switch to digital accounting if you have not done so already.
If you’re looking to take a step up as a landlord, letting agent or property manager, speak to us about going digital. Decorus for Sage is designed specifically for the real estate sector and comes with accounting features such as credit control, profit and loss overviews, direct debit processing and much much more. For full information on Decorus for Sage, leave your details and we’ll be in touch shortly.