Business Tips: The Financial Year (UK)

If you're new to self employment and business you may wonder what the financial year is. The financial year may also be known as the 'Fiscal' year or even budget year. Although there is  subtle differences between the financial year and the fiscal year for this small business blog we will be using the fiscal year as the financial year.

This period of time in the UK runs from the start of the financial year (6th April) to the end of the financial year (5th April). When I opened my first business (early 2000s), or the naughties as I like to still use! I couldn't grasp why my first financial year ended in April, when the business had only started the previous Christmas. To me it seemed like a very short year as it was only a third of a year really. What was the point of putting together my books when the likely hood was that I was going to make a loss in such a short time period. Well the basic answer is it's the law, and nowadays you have to declare how much your have earned to make sure you pay the tax on profits above a government set amount. It is also important if you claim any benefits to be able to show how much you have earned and are expecting to earn in order to keep receiving the benefit.

Does it matter that you make a loss? Well no not really, as long as you can project a profit to be made in the future otherwise whats the point in being self employed? Quite often people will use their previous years loss and offset it against the present years profits but look out for future posts for an explanation on this.

The financial year shouldn't really stress you out in any way. It is just the period of time that the records for your business should be kept, most importantly your businesses incoming and outgoing finances.

The secret to keeping good books is keeping on top of them and record as much as possible. Needless to say bank statements and receipts are a must but keep proof of every transaction because should your business be scrutinized by HMRC you want to be able to provide evidence of exactly what transactions your business has made or received to make sure you don't get hit with a fine or a heavy tax bill. In most small business this will not happen, but it could so better safe than sorry.

What do you then do with the financial records? Well you use them for your tax returns which will have to be sent to HMRC by the following October if paper based or the following January for on line submissions. This means you have plenty of time to get your books in order before submitting, but please, for your own sake, don't leave it to last minute.

Here's a small video from the HMRC you tube site that explains the basics:

Business Tips: Simplified Expenses

1988 movie Rain Man © 1988 United Artists Pictures Inc.

If you started your business after April 2013 or you are thinking of starting a business then you may be interested in the Simplified Income Tax Expenses. This can be quite a hard topic to explain if your new to business expenses, but if you expect to earn below the VAT threshold or work on a cash basis then the simplified income tax rules may save you money. It will certainly save you time and probably the need for an accountant, (however I would always advise an accountant if you have any doubt, their fee is tax deductible!!)

HMRC have a good You Tube section with many great videos on hard to understand business topics which I would recommend to any small business owner. Here is the basic video that gives a quick explanation:


And if you can find the time then take a look at:


If you are new to business or wish to find out more regarding you business and your responsibilities then check out the HMRC  youtube videos.