Hello, just joined today after coming across the site a few weeks ago.
I have been asked by a friend to start looking after his accounts, he has just started up his own business as a joiner.
I completed the AAT last year but I haven't a clue where to start !
I started foundation level in 2005 so I'm very rusty at the very basic booking, having no real experience since doing the course.
As he has just started he doesn't have any 'books' in place so its all down to me. I'm assuming I should create a cash book, sales and purchases ledger and a general ledger? Should I begin by recording all his purchases separating out the VAT from his receipts ? But then his sales, as he offers a service , (I think he just gives them a price) would I have to consider VAT ?
He is concerned about receiving cash from customers, but then using that cash to buy materials for another job, how should I record that ?
Any advice on how to start the ball rolling would be greatly received from myself! I'm probably sound like a complete novice, but I really have done the course ! ha ha It just doesn't teach you how to set this up from scratch
Are you intending to use a computerised system or a manual system? Personally I would get a copy of VT Transaction+ or even VT Cashbook and start there. Being a brand new business will make it easier.
You can begin by recording his initial capital investment, then any purchases he has made, then sales etc. The order you record these is of less importance than knowing you have recorded everything, so I advise however you do it that it is done in a systematic manner.
Obviously if he is VAT registered VAT would need to be charged on all sales. If he gives a price inclusive of VAT it is fairly easy to split the price of the services and the VAT as this must be shown separately on the sales invoice.
Receiving cash from customers and using it to by materials is not an issue as the assets value does not change. It is simply recorded in two parts for example if a customer pays £100 which he then uses £75 for materials (for which job these are used are of little importance at this point) the transactions would be:
Credit Sales £100 Debit Cash £100
then
Credit Cash £75 Debit Purchases £75
You will see he still has £100 in assets, its just that only £25 of it is in Cash.
The views expressed in this post are my own personal (HRA protected) views, and are not representative of any organisation I have any involvement with.
First of all are you going to be doing things manually or computerised? Second are you covered under MLR either with AAT (via practising certificate) or HMRC?
Although I see where you are coming from Sheila, as the OP does not state she is starting a bookkeeping business perhaps it's better to clear up the MLR stuff in that if she is to be employed by him as an employee to do his accounts she wont need it. So the question firstly must be are you employed by him, or self employed working for more than one client? Bear in mind if you are self employed only working for one client HMRC will more likely class you as an employee.
Kris
-- Edited by kjmcculloch on Wednesday 11th of August 2010 10:00:31 PM
The views expressed in this post are my own personal (HRA protected) views, and are not representative of any organisation I have any involvement with.
Oh no, hes my childrens dad! Im just doing him a favor as he thinks I know what Im talking about after spending 3 yrs and all that money passing the AAT!
It will be the first set of books that I will have had anything to do with and jsut not sure how to go about keeping things in order for him. I was just going to do it on a spreadsheet
Ive got all my old books out to refresh my memory but it was just where to start......
Although I see where you are coming from Sheila, as the OP does not state she is starting a bookkeeping business perhaps it's better to clear up the MLR stuff in that if she is to be employed by him as an employee to do his accounts she wont need it. So the question firstly must be are you employed by him, or self employed working for more than one client? Bear in mind if you are self employed only working for one client HMRC will more likely class you as an employee.
Kris
-- Edited by kjmcculloch on Wednesday 11th of August 2010 10:00:31 PM
Kris
That's a moot point. If she is working as self-employed and working only for one client and if, therefore, HMRC classes her as an employee it has worrying implications for her employer who may well not only have to pay any employer's NI but also employees and tax that has not been deducted from her "wages" plus a fine.
-- Edited by semsley on Wednesday 11th of August 2010 10:39:17 PM
Oh no, hes my childrens dad! Im just doing him a favor as he thinks I know what Im talking about after spending 3 yrs and all that money passing the AAT!
It will be the first set of books that I will have had anything to do with and jsut not sure how to go about keeping things in order for him. I was just going to do it on a spreadsheet
Ive got all my old books out to refresh my memory but it was just where to start......
Presumably not getting paid then so no worries about MLR. As a self employed joiner I would just keep an analysed cash book on a spreadsheet. Unless he is buying or selling things on a credit account there is no need to keep a purchase/sales ledger. If he is turning over less than £70,000 pa then no need to bother with VAT unless most of customers are VAT registered then it may be preferable to voluntarily register then all purchases can have the VAT reclaimed.
-- Edited by semsley on Wednesday 11th of August 2010 10:37:53 PM
oh yes not getting paid but it will be good experience for me.
I doubt at the min he will be turning over 70k but all of his purchases will be from VAT reg companies. Does this mean if he does not register he cant claim any VAT on purchases and wouldnt need to worry about VAT at all ? wouldnt he need to do a tax return ?
If he doesn't register he can't claim the VAT back from his suppliers but equally he won't have to charge VAT to his customers. If his customers are ordinary people (rather than businesses) this will be to his advantage. However, if his customers are VAT registered businesses it would be better for him to register then he could reclaim VAT from his purchases.
VAT has nothing to do with his tax return. His SA tax return is to work out the income tax and NI he owes at the end of his trading year on any profit he has made.
-- Edited by semsley on Wednesday 11th of August 2010 10:52:01 PM
Just out of curiosity - what about a volunteer Treasurer of an organisation? Say a semi professional football club? Would they (the treasurer) need to register with HMRC? A mostly cash based organisation that could easily be used to launder money (not necessarily terrorst funding - the reason the MLR were brought in).
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Never buy black socks from a normal shop. They shaft you every time.
HMRC rules state that you do not need to register if:
-You're in business as an Insolvency Practitioner. You'll be supervised by the Insolvency Service instead. -You provide tax advice or accountancy services on a non-commercial basis, for example within your own organisation rather than to a third party. You're outside the scope of the regulations because you don't provide these services as your business. -You provide certain payroll services that don't include tax advice or accountancy services.
So unless you are employed by that organisation you would be classed as offering services to a 3rd party and therefore need to register.
It isn't for me - it's for a friend. No really, it is. I have a practice licence with the ICB now so should be covered if I fill in all the necessary paper work. But in the past I was treasurer of my local football club and realise what an easy way it is to launder money. Well, maybe not so much "launder" it. I do know of one club who in the past were accused of using money from dubious sources (drugs etc) as they were paying ridiculous money for this level of football to buy players and pay their wages. It later transpired they were being funded by a large company who went into liquidation. This was to have an impact on the club concerned as they then had to negotiate with the players to reduce their contracts otherwise the club (over 100 years old) would have gone out the game. A legitimate piece of good fortune shone on them as well (I can't say what as that would effectively name the club) which helped them out in their hour of need.
The point I am making after all that drivel is it is an easy way to use up cash from illegitimate sources with no controls whatsoever. I doubt if any club treasurers are registered with HMRC or realise they maybe should be.
-- Edited by Peasie on Thursday 12th of August 2010 12:43:56 PM
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Never buy black socks from a normal shop. They shaft you every time.
How many people up and down the country do the books for their partners businesses (I know my mum does)? By this definition they are all breaking the law, is that right?
The views expressed in this post are my own personal (HRA protected) views, and are not representative of any organisation I have any involvement with.
How would HMRC know that someone was doing their partner's books in order for them to prosecute them for not registering for MLR? For all they know the business owner could be DIYing. And if, as ICB says, if you earn less than £700 you can register for free, then that's an option.
-- Edited by semsley on Thursday 12th of August 2010 08:15:23 PM
I understand what you are saying, but surely whether one is within or outwith the law is not determined by the probability of being caught but rather by how one conducts oneself.
This is the first time I've ever heard of this £700 ruling. I just wonder how many are doing this in complete ignorance.
The views expressed in this post are my own personal (HRA protected) views, and are not representative of any organisation I have any involvement with.
Probably hundreds, and I don't think that would be an exaggeration. Let's face it, it wasn't widely advertised was it? Only people interested in trawling websites would probably know anything about it. People who have been working independently for years without bothering to keep up to date by doing any sort of reseach or CPD would not/will not have a clue about it, yet they could end up in jail - certainly makes you think how easy it is to become a criminal inadvertently.
-- Edited by semsley on Thursday 12th of August 2010 10:38:41 PM
