Accounting Tips Guides

The essentials element of payroll administration in the UK is to accurately calculate the income tax and national insurance contributions deducted from the employee each pay period, produce payslips for each employee and account to the tax office for the payroll deductions.

Running a payroll system is natural for medium and large companies who may employ specialist payroll staff to perform these functions. Many medium companies may still choose to outsource the payroll function leaving many of the technical issues that might be encountered to a specialist payroll service.

Small businesses may choose to outsource the payroll function because they are not familiar with the paye system although HMRC do run seminars to assist employers. The payroll system not only calculates the tax and national insurance deductions but also has to deal with tax code changes, new employees and changes to existing employees plus taxable benefits and allowances such as statutory payments for sickness and maternity leave, contracting out of the state pension scheme and student loans.

The main benefit of manually producing the employee payroll is the reduced cost although the time spent on the payroll function by the proprietor may be better spent running the business. The cost may not be the cheapest option if an employee is required to produce the payroll. Purchasing payroll software can save significant time and costs for the small business that chooses to prepare and control its own payroll function. Although time is more important as the payroll production cost is not usually a big issue.

Outsourcing payroll adds a small additional cost to running the business but would normally carry worthwhile benefits in reducing the time spent on the function and reduces the paye administrative burden.

Main benefits outsourcing the payroll function.

1. Frees up time in calculating the payroll deductions and dealing with different and sometimes complex employee circumstances.

2. Using a professional outsourcing service to advise on potential payroll problems and difficulties.

3. The cost of outsourcing payroll should be compared against the cost of employing specialist in house payroll staff.

4. Payroll services use payroll software and are more likely to produce accurate tax and national insurance deductions and pay records reducing the prospect of problems with the tax authorities.

5. Payroll administration such as preparing the tax deductions schedules, dealing with starters and leavers, year end certificates for employees and the employer annual returns are normally all automated as part of the payroll service

6. The outsourced service company should also be responsible for producing employee payslips, advising tax and deductions liability and in larger businesses also provide a payroll analysis for accounting purposes.

Alternatives to outsourcing payroll functions.

Finding a suitable outsourced payroll service is not difficult. Local telephone directories or searching the internet would produce many potential payroll service providers.

Many accountancy firms offer payroll services to their clients and although the prices may struggle to be competitive price is always negotiable. Using the business accountant for the payroll has advantages since a substantial cost area for most businesses is already known to the accountant since they prepare the numbers.

Choosing payroll software.

The major alternative to outsourcing the payroll is for the business to acquire and use payroll software.

Larger companies require payroll software that has incorporated within it all the potential pay scenarios and also be capable of dealing with high numbers of employees. Large comprehensive packages can be complex to operate and require specialist wages staff.

Small business may choose simpler less complex payroll software packages that meet the basic needs of the business. It is important the person running the payroll within the wages function understands the payroll essentials and legal payroll administration requirements.

The advantages of choosing payroll software is basically the cost should save the business money against outsourcing the payroll, should retain control over the function and liabilities and ideally should take no more time that supplying employee details and gross wages to the payroll service.

If the business chooses to adopt a payroll software package then the complexity of the package should be considered and also the attributes and capabilities of the chosen software to produce all the payroll requirements in relation to pay and wage deductions, paye administration and employee payslips.

Terry Cartwright is a qualified accountant in the UK producing Accounting Software and Payroll Software packages for self employed and small limited companies. The payroll spreadsheets are suitable for up to 20 employees, produce the tax and insurance deductions, automate payslips and provide the employer with a full automated paye administration system

Goal setting is crucial to the success of any business, but is particularly important for entrepreneurs in the bookkeeping service business who can become distracted with multiple priorities. Goal setting allows us to be proactive, instead of just being reactive. We’ve all had days where we leap from one crisis to another, but we know that’s not a preferred mode of operation for our bookkeeping services! Goals direct actions, give us something to aim for, and serve as a yardstick for measuring our bookkeeping business’s success.

When setting business goals, I use a successful goal-setting formula that a business coach
mentor taught me. The formula incorporates a strategy or strategies for accomplishing the goal: “I will (goal + performance measure) by (specific actions).”

For example, suppose that you want to increase revenue. First specify the goal: “I will increase revenue this month by twenty-five percent.” Setting a specific goal builds in the criteria you will use to evaluate your success.

In this case, at the end of the month, you’ll either have increased sales by twenty-five percent compared to the previous month or not. Then, specify the strategy that you will use to work towards accomplishing the goal: “I will increase sales this month by twenty-five percent by offering a ten-percent-off sale on all inventory and advertising this sale in the local newspapers.”

This makes evaluating your success or failure easy because your goal is specific rather than general. Suddenly, instead of just having a goal that you may or may not achieve, you have a specific plan to follow to achieve the goal you have set.

If you avoid setting goals, here are a few bookkeeping business secrets for goal-setting success:

Bookkeeping Business Secret #1: Have Short-Term and Long-Term Goals

The first thing I do when setting goals is to consider where I would like to be five years from now. Once I have determined my long-term goal or ideal scene, I work backwards by breaking this ideal scene down into short-term goals and specifying milestones that need to be achieved along the way.

If the task seems too daunting with a five-year plan, establish 90-day goals. Limit goals to three specific things that you want to accomplish. Write out each goal and put a due date next to it. Then write out each step that needs to be taken, by when, and what type of support you need to accomplish that goal. Then schedule in your calendar time to honor the commitment you just made to yourself.

Bookkeeping Business Secret #2: Be Relevant

Goals should help you attain a specific aim. Beware of goals that keep you busy but do not contribute directly to the overall goal you have set for yourself and the success of your bookkeeping business. If you don’t believe your goals are worthwhile, you won’t make the necessary effort to achieve them. For example, several years ago I wanted to work a four-day work week. I set the goal, but did not really believe that I could or should work only four days a week. Guess what? It never happened because I was not truly aligned with the goal.

Bookkeeping Business Secret #3: Review Your Goals Constantly

Review your goals daily. Keep them in plain view - by your desk or next to your computer. Goals are not something that you write down and file in a drawer. The more you embody your goals, the more real they become and the more aware you are of opportunities that cross your path to help you achieve those goals.

I write my goals on colorful 4×6 index cards and keep them by my bedside. I read them first thing each morning and then again before I go to sleep at night. This keeps me focused and moving toward my goals.

Bookkeeping Business Secret #4: Stay on Track

Once you establish clear goals you will begin to notice that opportunities begin to present themselves. When this happens, I ask myself a very important question which helps me to decide whether I should look further into the opportunity or let it go - “Does this opportunity bring me closer to my goal or further away from it?”

By asking yourself this simple question, you’ll be able to take decisive action towards accomplishing your goals. For example, a lovely salesperson from ADP has been calling me to schedule a meeting to show me their services and how they have changed. By asking myself, “Does this opportunity bring me closer to my goal or further away from it?” I have no problem deciding whether or not I should schedule the meeting.

Linda Hunt and Laurie O’Neil are the co-founders of The Bookkeeper’s Referral
Network Inc., the place where business meets great bookkeepers. To get your
copy of The 9 Disastrous Mistakes Most Freelance Bookkeeper’s Make in
Business (and How You Can Avoid Them!) visit http://www.bkpr-network.com

To qualify for being able to file shortened accounts a small company should satisfy at least two of three conditions. The three exemption conditions prior to April 2008 were that annual turnover is less than 5.6 million pounds, balance sheet total is less than 2.8 million pounds and the average number of employees is less than 50.

Where the financial year started after April 2008 the parameters increased to, annual turnover less than 6.5 million pounds, balance sheet total less than 3.26 million pounds and average number of employees less than 50.

Medium sized companies may also submit abbreviated accounts and the parameters to be classified as a medium sized company are significantly higher than those for a small company. For example for financial years starting from April 2008 two of the three qualifying conditions for a medium sized company to be satisfied were increased to sales turnover of under 25.9 million pounds, balance sheet total under 12.9 million pounds and average number of employees less than 250.

When a small company satisfies the audit exemption parameters it can maintain that audit exemption for a full financial year afterwards even if the parameters were exceed in that following financial year.

There are benefits in submitting abbreviated accounts as simpler and easier accounting records can be maintained reducing time spent on accountancy work. In addition although potential suppliers and financial institutions may require details of the year end financial accounts it is acceptable not to publish full details.

The main differences that can be produced under the banner of abbreviated accounts basically mean that a small company does not have to include a full balance sheet, profit and loss account or directors report which would normally be required by Companies House.

The small company is still required to submit a shortened balance sheet together with notes that explain the year end balances shown in the balance sheet. Under the audit exemption rules the year end accounts for a small company do not have to include an auditors report. When an auditor has prepared the accounts and submits a special audit report that report should state that in the auditors opinion the abbreviated accounts are being submitted in accordance with the appropriate section of the Companies Act.

Small companies must include a statement in the balance sheet that the year end accounts have been prepared in accordance with the special provisions contained in Part V11 of the Companies Act 1985. For financial periods starting after 5 April 2008 the accounts must be prepared in accordance with the Companies Act 2006 and include a statement that the special provisions applicable to small companies have been adopted

The statements to accompany the balance sheet of a small company submitting abbreviated audit exempt accounts are that:

The company was entitled to audit exemption for the financial year under the relevant section of the Companies Act 2006.

The shareholders have not required the company to obtain an audit.

The company directors acknowledge their responsibility for preparing accounts that comply with section 221 of the Companies Act 2006.

The company directors acknowledge their responsibility for preparing accounts which give a true and fair view of the state of affairs of the company and the profit and loss for the year.

The accounts have been prepared in accordance with the special provisions of the Companies Act relating to small companies

The rules on audit exemption apply not only to the year end accounts supplied to companies house but also those supplied to HMRC. This enables the small company to submit the short version of the corporation tax return, CT600, with the abbreviated accounts for tax purposes.

Terry Cartwright is a qualified accountant in the UK and producing Accounting and Audit Exemption packages for small limited companies in accordance with Companies House submission requirements.