Manage my accounting

Staying on top of your accounting processes and your paperwork is crucial for any retailer. Whether you operate a bricks-and-mortar shop on the high street or you run an online e-commerce site, you will need to know how much money is coming in and going out of your business, what taxes you need to pay and what types of invoices you have to provide your customers. 

A business owner also has to make sure they are aware of and understand the implications of legislation and regulations on their business practices. If you change the nature of your business, say you take on a partner or incorporate as a company, then you will need to know how this impacts your bottom line and your tax obligations. 

Running your own business is incredibly rewarding and can be very lucrative. However, it is also a lot of work! We’ve put this short guide together to assist new entrepreneurs in coming to grips with everything they need to know about retail store accounting.

Summary

• How to write invoices
• How to manage VAT
• How to manage taxes
• The importance of purchase orders
• Keeping track of your cash flow
• Changing the legal entity of your business
• Relevant legislation for UK retailers
• Where to find assistance with retail accounting

How to write invoices

Learning how to write invoices is one of the most important and yet basic accounting skills a new retailer needs.  An invoice is a legal document that serves as a demand for payment for goods or services. If you are a VAT-registered business, then His Majesty’s Revenue and Customs (HMRC) requires you to keep your invoices and submit them with your tax returns. Even businesses that are not registered for VAT should keep a close watch on their invoices so they can manage their cash flow properly.  

Generally, an invoice has to include the below information:

• Your business name and address
• A unique invoice number
• A list and description of all goods and services provided
• The individual price of all goods and services
• The total amount due
• VAT charged
• The date of the invoice

How to manage VAT

Being aware of what VAT you have to charge, or if you have to charge VAT at all, is an integral part of small business accounting.

VAT stands for Value Added Tax. VAT is added to the cost of a product or service sold by a retail business and collected by HMRC. If your business has an annual total turnover of above £85,000, then you will need to register for VAT. VAT registered businesses must include VAT on the cost of their goods or services and complete a quarterly VAT return. You can complete your VAT return online.

There is a standard rate of 20 % VAT applied to most goods and services. Some goods attract a reduced rate of five %, while others attract no VAT or are VAT exempt. You can check what goods or services attract what rate of VAT on the HMRC website and use an online VAT calculator to help you work out what you should be charging. 

How to manage taxes

If you are not making sure your business is paying the right taxes, you could wind up in hot water with HMRC! Tax rules can be complicated, so many entrepreneurs hire bookkeepers and accountants that specialise in accounting and tax services for small businesses. Although small business tax accountants can be expensive, many business owners would rather pay these costs than have to worry about managing their taxes themselves.

The types of taxes a small retail business may be liable for is contingent on how the business is registered, the number of employees, and the annual turnover. In general, though, there are five main taxes applicable to small retail businesses:

• Corporation tax
• Value Added Tax (VAT)
• Business rates
• National Insurance
• Capital Gains Tax (CGT)

The importance of purchase orders

Purchase orders are used by retailers to request inventory from suppliers. They are like an invoice, but instead of being a request for payment, a purchase order is a request for the supply of goods. Once they have been accepted by the supplier, purchase orders are legally binding. They are especially useful during busy seasons like Christmas time. Having a purchase order means that a retailer can ensure that they have enough inventory on hand to meet customer demand. Purchase orders can also be used to establish relationships with new suppliers. They are important for inventory accounting and keeping track of trade payables. 

Keeping track of your cash flow

Every retailer needs to know exactly how much money is coming into their business and how much is going out. If you don’t have an effective cash flow management system, then you could find you don’t have enough funds to meet payroll, restock your inventory, pay rent, or pay your taxes. Cash flow management is an absolute fundamental of running a retail operation. 

Retailers need to be able to accurately forecast what their projected costs may be to ensure they are generating enough profits to meet these costs. A business owner must closely monitor all business expenses and the profit margins on sales. All outgoing and incoming invoices, purchase orders and receipts must be recorded. Once again, enlisting the services of an accountant or using custom small business accounting software can ensure you know exactly where your money is going. 

Changing the legal entity of your business

How you have registered our business impacts the nature of your corporate accounting. Different types of business structures have different tax obligations. If you change the type of legal entity that you trade under, then your accounting requirements will need to be reassessed and your accounting procedures adapted to meet your new legal obligations.

The three main business structures in the UK are: 

• Sole proprietorships (also known as ‘sole traders’)
• Partnerships
• Companies

A sole trader may decide to form a partnership with another retailer, or a partnership may decide to incorporate as a company. This will inevitably mean that the tax status of the business changes. It is advisable to seek assistance from an account or business consultant before you finalise any changes to the legal structure of your business. 

Relevant legislation for UK retailers

UK retailers are governed by a range of regulations and legislation that covers what they can sell, how they can sell it, the conditions for staff and how a retailer must account for their profits and expenses. Staying within these laws will ensure that a retailer avoids penalties or legal action arising from unlawful behaviour, whether intentional or not.  

UK retail legislation covers areas such as:

• Pricing
• Trading hours
• Age restrictions on the sale of certain goods
• Returns and refunds
• Staff safety
• Product descriptions
• Fair trading
• Consumer protection
• Product labelling
• Online sales
• Corporate accounting periods

Where to find assistance with retail accounting

Operating any type of retail business requires you to be aware of and manage a range of complex accounting rules and responsibilities. While it is advisable to use an accountant, the average cost of accounting services for small business owners can be prohibitive. Using tax accounting software for small businesses is also an option however, learning these programs can be time-consuming.

If you are looking for professional assistance and advice with accounting for small businesses in the UK, Ankorstore is here to help you. Small retailers can find the support and guidance they need by joining our Ankorstart program. The Ankorstart program is non-binding, totally free and provides new retail entrepreneurs with advice on a range of issues, from marketing to accounting. 

FAQ

• What resources can I use for my small business accounting? 

There is a range of resources retail entrepreneurs can use to make their accounting procedures easier. Tax accounting software for small businesses can help to streamline your accounts and a professional tax accountant can also assist you.

• How much do accountants charge for small business taxes?

There is no set or regulated fee for small business accountant fees in the UK. The amount a small business accountant will charge depends on their expertise and the complexity of your accounts. A small business owner could pay a specialised tax accountant anywhere between £60 to £250 per hour for their services. 

• What is the best business bank account for small businesses?

Your business bank account will need to be able to accept payments from customers, send payments to suppliers and creditors and pay other business transactions, such as tax payments or monthly lease payments. Sole traders can use their own personal bank accounts to conduct business from, however, any VAT-registered business or registered company must open a business bank account.

Need more tips on running your shop? Check out more articles below: