Many expats don’t realise just how different conducting business in the UK is compared to their home countries. This can result in making a number of common, but avoidable, small business accounting mistakes, and so we explain what to look out for to ensure you don’t make them.
Dealing with a UK bank takes time
Many expats arrive in the UK unaware of the time it takes to deal with local banks. Your waiting period won’t be short, especially when they are receiving your details for the first time. The extensive time frames are due to a few reasons, one being the stringent regulations that exist in the country.
Be sure to allocate sufficient time for any tasks you need to do that involve the bank. Don’t expect that opening up a bank account for your business, setting up an account for your supplier or applying for a tax number can be done immediately and online.
Fortunately, using an outsourced small business accountant who is registered in the UK can shorten your waiting period significantly, resulting in a far more streamlined process.
Understand when your company’s year-end date is
All businesses must compile accounts that give an indication of the performance and activities of the business during the financial year.
Businesses across many countries have similar year-end dates; this is not the case in the UK. In the UK, your year-end date is based on the month that your business was incorporated.
Many expats don’t understand the significance of the incorporation date of a business to its year-end date. This can create uncertainty around what date the accounts should be made up to and when they should be submitted.
The financial year starts on the day after the previous financial year ended or, in the case of a new company, on the date of incorporation. Financial years are determined by reference to an Accounting Reference Period (ARP). The financial period ends on the accounting reference date.
If your company is new, its first accounting reference date will be set as the last day of the month in which its first anniversary falls. The following years’ accounting reference dates will routinely occur on this date. Be sure to know exactly when your year-end accounts are due as late accounts trigger an automatic fine.
Fortunately, your year-end date is not set in stone and can be changed. If you wish to change this date, we recommend seeking out professional assistance.
Know the difference between the tax year and the financial year
Many people don’t understand the difference between the tax year-end and the financial year-end.
The financial year end is your company’s year-end, whereas the tax year is based on the personal tax year for the entire UK. The UK tax year runs from 6 April until the following year 5 April.
Understand how benefit in kind works in the UK
Benefit in kind occurs when an employee receives anything considered a benefit to the individual from their company. Examples of a benefit in kind could be health insurance, a company car or a gym membership.
In many countries, the company pays the benefit in kind tax, however, in the UK, the individual receiving the benefit will pay the tax.
For example, in your home country, if an employee is offered a company car and can choose which car they’d like, they may choose the nicer and more expensive car at no additional cost to them. However, in the UK, if an employee chooses the more expensive option, they will have to pay a greater sum of money towards benefit in kind tax. At the end of your tax year, they’ll be given a P11D form that states that they’ve received a benefit in kind in the form of a company car. If the car falls under the higher rate tax bracket, they’ll pay 40% in tax of the value of your chosen car.
If employees are unaware of how benefit in kind works in the UK, they may get a nasty surprise when working out their taxes. While they are still receiving a benefit, you should inform them as to how it works so they can be mindful of what it may cost them and make an informed decision.
Anti-money laundering rules are more robust in the UK
While the process of anti-money laundering (AML) is similar across most countries, it can be a more of a concern in the UK as the rules and requirements are far stricter and more precise.
Your accountant will need to be able to prove to HM Revenue & Customs (HMRC), the Institute of Chartered Accountants (ICAEW) and the banks that they have collected your information according to the requirements under the Anti-Money Laundering regulations.
Entertainment – how it works in the UK
Most people feel that taking a client or potential client out for entertainment qualifies as a tax deduction – in most countries it does, just not in the UK.
For example, if you take a client out to lunch for a business meeting and offer to pick up the tab, you can pay using your company card. While the company has paid for your lunch together, when it comes to doing the accounts, all entertainment used for clients must be deducted out before the corporation tax is worked out. In conclusion, client entertainment is not a tax-deductible expense and so the company won’t get a saving on the tax.
However, when it comes to staff entertainment, it is a tax-deductible expense so long as all the staff are invited to the event and the cost falls within the amount set by HMRC. This deduction only relates to the staff in the company.
For example, if your company hosts a year-end function and allows the staff to bring their partners, the company will only be able to claim the amount that relates to the staff, not the partners.
Entertainment is very complicated in accounting terms. It is important to understand exactly how it works so that you know what you’re able to afford and, in turn, what you’re able to do.
If you need help opening up a bank account for your business or completing SME accounting tasks such as tax planning, get in touch with our team of experts. Fill out our contact form, email us on firstname.lastname@example.org or give us a call on +44 (0) 20 7759 7553 and we’ll get back to you.
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