If you add sales invoices and purchase invoices (bills) to your accounting software, they are all shown as unpaid. When you receive/pay that invoice, the income/expense transaction will be imported into your bank account. When you categorise/reconcile/explain that transaction, you will need to match it to the invoice already created. This will change the invoice from unpaid to paid.

Do not categorise the bank transaction as a sale/cost, otherwise you will duplicate the sale/cost that was created when you added the invoice. If you have, see below.

The way to match a bank transaction to an invoice is different for each accounting software. Here are some links to help you…

Xero – Match to an existing transaction

QuickBooks – Match with an existing transaction

Pandle – How to process an invoice payment through banking

Freeagent – How to mark an invoice as paid

Freeagent – How to pay a single bill

To fix sales/costs that have been duplicated because the bank transaction has not been matched to the invoice, you have two options.

1. Redo the bank transaction. Find the income/payment in your bank account that has been categorised to sales/costs instead of matched against an invoice. Undo the categorisation. Match it against the invoice.
2. Void the invoice. If the bank transaction has been categorised correctly (i.e. the same as the invoice), you can find the invoice and void it in the options.

The employment allowance means that many employers don’t need to pay the first £5,000 (2023/24) of employers National Insurance Contributions (NIC) due. Note that employees NIC is still fully payable to HMRC. You claim the employment allowance by submitting an EPS payroll report to HMRC which indicates that you are claiming the allowance. You can see how much you have already claimed this tax year by viewing the payroll report that shows how much is payable to HMRC every month. This report is called a P32 or EPR and the allowance or employment allowance column shows how much has been claimed.

If the only employee that is paid more than the secondary NIC threshold (£9,100pa) is a sole director, it can’t be claimed. If the employer (or group of connected employers) pays more than £100,000 of employers NIC in a tax year, it can’t be claimed. Only one employer in a connected groups of employers can claim the employment allowance. Some businesses may not be able to claim it if they have received other grants from the UK/EU. See here for more details.

HMRC is sending letters to most employers about Employment Allowance. Receiving a letter does not indicate whether you can or can’t claim it. For our payroll clients, we have already claimed Employment Allowance for you if you are eligible.

Our fixed fee tax returns cost from £55pa to £240pa plus VAT. The cost of tax returns vary depending on how many and what types of income you have. If you just have employment income and benefits, your ‘Employee’ tax return costs £55pa plus VAT. If you own one or two businesses, investment properties, or shares, your ‘Owner’ tax return costs £110pa plus VAT. Investing in more than a couple of each of the above will increase the cost to £165pa plus VAT for our ‘Investor’ tax return. However, if you have any capital gains or foreign income, we charge an ‘Investor+’ price of £220pa plus VAT for your tax return. Our accounts packages include one Owner tax return. You can see all of our prices here.

For VAT returns, you’ll need to be on at least our Quarterly package. Our Quarterly package includes VAT returns and quarterly management accounts, a business and a personal tax return, and unlimited advice. Our Quarterly packages including VAT returns cost £44pm for sole traders, £55pm for partnerships, or £66pm for limited companies.

VAT returns are also included in our Monthly package which has bookkeeping and monthly management accounts included in the cost. All of our packaged accounts prices are detailed here.

For accounts, you’ll need to be on at least the Annual package. The Annual package includes a business and a personal tax return, and advice for about 1 hour per year. Our Annual packages including accounts cost £22pm for sole traders, £33pm for partnerships, or £44pm for limited companies.

Accounts are also included in our packages: Annual+, Quarterly, and Monthly. As well as accounts and tax returns, these packages have more services included in the cost, such as regular reviews of your online accounting, VAT returns, and bookkeeping. All of our packaged accounts prices are detailed here.

Change in Pay

PAYE and NIC deductions are based on a percentage of pay, so if your pay changes, these deductions are likely to change in the same direction. A change in pay might also put you into a different tax band so the rate of PAYE/NIC may have changed.

Change in PAYE Tax Code

The PAYE deductions are based on your PAYE Tax Code. The standard tax code is 1257L which gives you an annual tax-free allowance of £12,570. In other words PAYE is not deducted from the first £1,047.50 of pay per month. Generally, if your PAYE code increases, you get more of a tax-free allowance so the PAYE deductions decrease, and vice versa. The PAYE tax code is determined from the employee’s joining details, such as the starter checklist and P45, then can only be changed by HMRC.

Director’s NIC

Directors usually pay NIC on an annual basis. So they pay no NIC while their year to date pay is below the NIC thresholds. When their year to date pay goes over the thresholds they pay the full rate of NIC on the excess. So directors on a small salary, typically around £10k per annum, will notice that they pay no NIC in April to December, then start paying NIC in January to March. There are two starting thresholds for NIC – £9,100 for Employers NIC and £12,570 for Employees NIC (2023/24).

There are a few things below to consider when deciding how much dividends to pay. Generally speaking, you should pay yourself as much dividends as possible at the lower rates of tax. However, you may want to pay yourself a small salary first, because this will save corporation tax.

Does the company have enough profit reserves?

A dividend is the payment of company profits to its shareholders. So a company can only pay a dividend if it has enough profit to cover that dividend. A company may have unused profits (or even losses) from previous years, so you need to look at total profit reserves (or retained earnings) rather than just the profit of the current year. Profit reserves are the net profits after tax of a company since it started, minus the total dividends paid since it started. You can find the amount available on an up to date balance sheet report. It will be the Total Equity minus Shares, or called the Profit & Loss Account, or Retained Earnings.

Are there any other shareholders?

Dividends have to be paid at the same rate per share to all shareholders of the same class. If the company has a simple share structure, we can say that dividends need to be paid out in the same proportion as how the company is owned. So if two shareholders each own 50% of the company, a total dividend will need to be shared 50% each. The company will need to have enough profit reserves to cover the total dividend.

How much tax will I pay?

Dividend don’t affect corporation tax, only personal income tax. Every person can receive £2,000 of dividends per tax year, tax-free. This is in addition to your tax-free personal allowance of £12,570 per tax year. So if you have no other income, you could receive £14,570 of dividends tax-free. Otherwise, dividends that fall above these allowances, and below your total income of £50,270 will be taxed at 8.75%. Dividends that fall into your total income over £50,270 taxed at at least 33.75%. These rates and allowances are correct at the time of writing (2022-23).

PandaDoc is an electronic signature service that we use. You don’t need an account. Simply click on the link in every email you receive from PandaDoc and check the document. Then, to indicate your approval, follow the instructions and buttons to e-sign, date, and finish each document. For company accounts there will be at least 4 emails/documents. You can then download the e-signed document, or if someone else still needs to e-sign it, PandaDoc will email you with a link to it once everyone has signed it.

Not normally but you can request one. We provide a Summary & Review report with your accounts. This explains in detail what is included in the accounts and the accompanying documents. Where necessary, we will add any additional comments, analysis, notes, questions, and tips. If you are on the Annual+ package or higher, and use online accounting we also provide a review every 3 months. On the Annual+ package you’ll need to reply to the email reminding you that the quarterly review is due.

If you have any questions about anything, you can email us, call us, or video call us. You can book an appointment using the link in our email signature.

If you’re in business, it’s important to know your year end date. It’s the date your accounts and tax reports need to go up to every year. So you may need to do some admin such as value your stock. Also, you could take action before the year end to save or delay tax.

If you are a sole trader you probably have a year end date of 31st March or 5th April (treated as the same date by HMRC). If you have a different year end date it will say on the last set of accounts prepared. Different year end dates will need to be changed to the 31st March or 5th April in the next year or two. This will avoid complications when Making Tax Digital (MTD) for income tax starts in 2024.

If you have limited company you can find your year end date online here. Just search for your company and it will say in the Accounts section. The company’s year end date is automatically set to the end of the month the company was registered, plus 12 months. However, this date can be changed by extending or shortening an accounting period. A company can extend its accounting period up to 18 months, once every 5 years. It can shorten its accounting period as often as necessary.