It’s always a difficult time of year; you’re inundated with things to try, tax forms are in the post, your draw is overflowing with receipts and you are (most likely) uninterested in watching your desk and display screen.
All of this only means that one thing is near on the agenda: Tax Season. Unless your e-commerce store’s finances are in good check and you’ve remained prepared, tax season is usually a stressful time of year. Fortunately, we’ve got some tips which will really help make your online business accounting and tax filing an entire lot easier.
Running an e-commerce business is more complicated when using paper of excel to track the comings and going of your business.
With a proper accounting software set up for your business, you can track your sales, expenditure and inventory. Additionally, you can prepare financial statements using these software (e.g. Xero, QuickBooks and Sage). The kind of financial statements you can prepare include a balance sheet, income statement, and cash flow statement.
If you’re still conducting your accounting with a notepad or scrap paper – you need an update. An investigation by HMRC into your business accounts is that the last item you would like, especially when it’s now very easy to try to to accurately online.
Here at TaxCare Accountant, we provide a variety of Cloud Bookkeeping software. It’s simple to use, helps you to keep track of your money, and it even integrates with our other cloud products. This software allows you to simply produce and catalogue invoices, keep a running register of bank deposits and pay-outs, and see your current inventory and past purchases at the press of a button.
Utilising such accounting software and then integrating it together with your store keeps your books accurate and up-to-date. It also acts as an excellent mechanism to save lots of time by lowering on you having to manually input your own calculations – which might then allow you to concentrate your focus elsewhere.
Additionally, once you plan to hire an accountant, these sorts of software will grant them quick access to your business reports and knowledge , with all of your transactions located in one place.
If your online store has been up and running for quite a year, then you recognise the importance of correctly recording business expenses and revenues.
Many expenses are tax allowable, which then reduces your business’s taxable income. This includes things like shipping costs, website domain and hosting fees. Outgoings to services like bookkeepers and accountants also are tax deductible – excellent, making them even better value!
With every purchase, you will need to make sure you get a receipt. The importance of this can’t be stressed enough – the receipt is your proof. It details the transaction date, product or service information, and therefore the price.
We would recommend keeping your receipts for the previous six years. This might sound inconvenient and unnecessary, but you will be audited as far back as six years. Plus, if you don’t want to keep the paper copies, there are now apps like Evernote and Expensify that allow you to store receipts the paperless way. HMRC encourage this method of keeping invoices and records.
The majority of accounting software available on the market allows you to attach your checking account, which then gives you the power to automatically download and sync transactions. This is great because it saves you the time and energy of manually entering all banking transactions, which is helpful when reconciling your accounts.
You might be wondering what ‘reconciling your account’ actually means. Put simply, it means taking two sets of records (your bank and accounting software) and ensuring they both align with one another. This is beneficial because it can highlight transaction errors, duplicate and fraudulent charges, whilst simultaneously supplying you with the peace of mind knowing that each credit and debit are processed successfully.
When you’ve integrated your accounting software together with your bank, you will then have the power to categorise transactions as they are available in throughout the week and month. Then, once the month’s end comes, you’ll run a reconciliation report which will automatically match your transactions.
If you are doing this regularly (preferably a minimum of monthly), you’ll be ready to easily highlight any discrepancies when things don’t balance correctly, which may allow you to quickly get things back on target.
Tax Deadlines are like wedding anniversaries – if you forget, the repercussions might be catastrophic and that they are usually a pain to organise for. But, while your partner might not be too happy for the day and eventually ditch it, HMRC won’t forget. Missing a tax deadline may result in heavy penalties.
Please ask us if you’re worried about when your taxes are due. We are here for you.
First things first, if you haven’t already set up a separate bank account for your business, you must do this right away. This is the most efficient way to track your cash flow as you can monitor the money going in and out of your business with all of the relevant transactions.
Once this is done, you can create a strategy to cut down on unnecessary expenses. Reducing minor costs can significantly improve your expenditure. Moreover, your business’ cash flow can also be improved by negotiating terms with your vendors. This can include incentives such as discounts on purchases or longer payments.
The key to any business, online or offline, is managing your finances correctly and efficiently. Hiring an accountant who specialises in e-commerce businesses will help you to understand technicalities such as cost per click, costs of goods sold, gross profit and break even.
Most e-commerce owners don’t understand the key components of running an online business, e.g., managing inventory, the cost of their stock, or the impact of cash flow.
A specialist e-commerce accountant will help e-commerce business owners to understand all of these components and more, such as VAT.
For e-commerce good, there is little different between online and physical selling of goods in terms of VAT, unless you are selling digital goods such as digital music or e-books.
If you are selling goods online, then you are using the internet for distributions and receiving payment for your goods which HMRC consider the same as hanging items to customers in a physical store.
If your VAT taxable turnover is over the threshold of £85,000 then you must register for VAT. However, if your taxable turnover is below this threshold, then you are not required to charge VAT.
As soon as your taxable turnover goes over the threshold of £85,000, e-commerce businesses must start charging tax on their goods. This is usually 20% for the majority of items, but there is a 5% rate for energy-related goods, and welfare and health-related goods.
If you are required to register for VAT, visit HMRC VAT advice line for help registering.
Table of Contents With the holiday season approaching, it’s time for business owners to gear up for what could be the most profitable time of
The ten reasons why bookkeeping for small business is important
Accounting and payroll outsourcing, exploring its benefits, considerations, and the path to successful implementation
The Autumn Budget Statement 2023 brings about a tapestry of adjustments, from employee benefits to small business incentives
Looking for a professional accounting service? TaxCare Accountants offers a simple, affordable accounting service with a fixed fee.