Profit and turnover: the difference!

Written by Mark. Posted in Uncategorized

Profits and turnover explained

Profit and turnover is something business owners love to brag about. But there is a big difference between the two.

Owning a business with a great turnover sounds impressive. But what really matters is how profitable a business is.

If the turnover sounds substantial but is smaller than what’s owed to suppliers, then the business may not be as healthy as it sounds.

Thomas Cook’s turnover was almost £10bn when it collapsed in September 2019. Its debts were almost £2bn and it was still paying out salaries, etc. and had to pay into a pension pot.

So, the turnover figure didn’t really reflect the health of the business. It was losing money quickly and couldn’t pay its debts.

As a result, investors were nervous and it couldn’t find anyone willing to finance its future.

So what is turnover?

In accountancy, turnover is how much a business makes in cash sales during a specific period, usually a tax year. The sales can be in cash, credit or debit card transactions.

Usually, turnover refers to net sales, which are sales after discounts, returns or allowances.

Your gross sales figures are what you have taken before such discounts. So, if your business doesn’t give discounts or refunds, then the figures may well be the same!

If you keep accurate financial records (and you should for your tax purposes) it should be easy to add your total sales together. The resulting figure is your turnover.

And what is my profit?

Have you heard the saying about turnover being vanity while profits are sanity?

Profit is how much money your business makes after you take away the cost of doing business.

For example, if you have made £10,000 profit you need to then subtract how much it cost you to make that money. This includes items such as overheads, buying supplies, travel, etc.

There are three types of profit too! Your profits are reported as being gross, operating or net. So, what is the difference?

Gross profit: This is sales less the cost of goods sold. What that means is you’ve taken into account, or subtracted the expenses that were needed to produce the goods and services needed.

Operating profit: This is your gross profit minus operating expenses. These expenses are the likes of your overheads, such as rent and heating.

Net profit: This is your operating profit less your taxes and interest from any loans.

Turnover and profit

Both turnover and profit are ways to measure the earnings of a business. Turnover is a measure of the earnings without taking the costs into account.

Profit is the earnings of a business after costs. You can think of profit as the money your business gets to keep after spending on all your necessary expenses.

Those expenses can be the cost of wages, suppliers’ costs and overheads such as rates or rent.

If you fail to make profits, then your business will struggle or you will need to look at other means to raise the funds necessary to run your business.

But remember, the interest on any loans or credit then becomes one of those costs, and they can build up, as happened to Thomas Cook!

If you are a business owner looking for no-nonsense advice about your financial position and your accounts. We’re based in Newcastle but we deal with companies across the North East.

Contact us today for more information.

HMRC: How to spot a fake

Written by Mark. Posted in Uncategorized

HMRC will often get in touch with you via email. But this means scammers can take advantage of the situation – especially if they are promising a refund!

A client recently received a real email from HMRC. It spurred us on to let you know how you can spot the difference between real and fake HMRC emails.

They had received the email as they had filed their self-assessment tax return on time.

As many people are receiving similar emails at the moment, we thought we’d share some advice.

The real email

Above is a screenshot of a real email from HMRC and it’s easy to see spot the difference once shown.

First of all, there are no requests to click on a link to the HMRC website. It sounds obvious but that is the giveaway!

If you receive an email asking you to ‘click here’ then it will be a scam. That is because HMRC never asks you to click anywhere.

Even if you are owed a refund, they will never ask you to click and give your details to them.

It is exciting thinking have a refund, but HMRC won’t contact you via email to tell you.

Instead, they inform you by letter. And they never ask for bank details as they will send the refund to your bank account or by cheque.

Try to avoid clicking on the links just in case you download a virus. But even if you do, just make sure you leave the website as soon as possible.

They will not attach any documents either as this could be a way of infecting your computer. If there is one it will be a fake email.

And remember, HMRC does not send an email asking you to share debit or credit card details or bank information.

Other ways of contact

If you have underpaid your tax, HMRC may give you a call. Beyond that, they will not.

So, if you receive a phone call demanding payment and your bank or card details, it’s a fake.

A real employee may call but it will be to discuss your account. The moment a request is made for your details, that’s the time to put the phone down.

Some scammers use an automated voice that tells you they are filing a lawsuit against you. Again, put the phone down if you receive a call like this.

Other ways scammers will try to get your information is by:

  • Text. HRMC never uses texts to contact you
  • WhatsApp: You won’t be contacted using the App.

Speak to your accountant

HMRC will understand if you are ever suspicious of a call. If you are, the best way is to put down the phone. You can email any concerns to phishing@hmrc.gov.uk

You can also speak to your accountant. Usually, your accountant will know of any issues before you. But if not, then they can contact HMRC on your behalf a lot more easily than you can.

If the underpayment or overpayment is an issue they will find out for you.

HMRC has more information on its website. Or you can always contact Concept Accountancy. We are accountants based in Newcastle, but we are happy to help business owners keep peace of mind.

Bookkeeping: an essential part of business

Written by Mark. Posted in Uncategorized

Bookkeeping using modern software and papers

Bookkeeping is an essential job when running a business. It’s part of the process in accounting and involves recording financial transactions.

Many small business owners, particularly sole traders or small companies, may find bookkeeping to be a real chore.

But without it, you won’t know what’s happening in your business financially.

At Concept Accountancy, we offer bookkeeping services like many firms in Newcastle. But it is a different service to accountancy.

For anyone new to business or who confuse bookkeeping with accounting, let me explain what you need to know.

Is there a difference between bookkeeping and accounts?

Bookkeeping is the regular task of recording and monitoring the financial transactions of your business. It is usually carried out by a qualified bookkeeper in accountancy firms like Concept.

Accountants tend not to carry out bookkeeping because their specialism is in interpreting and analysing the financial data.

But if that data isn’t recorded correctly, an accountant will have real problems analysing the data. This is where bookkeepers come into their own as they monitor the cash that’s coming in and out of the business.

Let us say you are a small business or SME in Newcastle and need to know how healthy your business is.

If you haven’t kept bookkeeping records correctly you won’t really understand why your bank balance stands at any particular time. Just looking at the cash in your bank doesn’t always tell the full story.

Some business owners will keep their own books, but many will employ the services of bookkeepers.

Many are individual specialists but here at Concept Accountancy, we offer a bookkeeping service. So what do you need to record?

The essentials

Bookkeeping is, as we have said, a way of tracking and recording the numbers in your business. It is essential and good bookkeeping allows you to track the performance of your business.

Correctly recording the data makes it easy for an accountant to assess your business and it means you will always pay the correct taxes.

The person or people responsible for bookkeeping will look after, among other things:

  • Expense payments to suppliers
  • Loan payments
  • Customer payments for invoices
  • Monitoring asset depreciation
  • Generating financial reports

Why does it matter

You need to keep up-to-date records of what cash is coming in and out of your business so you know what you’re owed. If you know that you will know if you have enough money to pay what you owe, whether that’s bills or for staff or contractors.

Recording transactions

To keep tabs on financial transactions that happen daily, you need to record them into your accounting system. Although that’s often digitally these days, they’re still known as books.

For each transaction, there must be a document that describes the business transaction. This can include a sales invoice, sales receipts, supplier invoices, bank payments, etc.

The documents provide an audit trail for your transactions and are an important part of maintaining accurate records. These records help your accountant understand the strengths and weaknesses of your business. They also ensure you don’t over or underpay HMRC!

Traditional way

As already mentioned, the name goes back to the days when physical books were used to record transactions.

Each transaction created a paper-trail of finances and it traditionally involved ledgers, charts of accounts and a double-entry system.

Double-entry is based on the fact that every transaction has two parts, which affects two ledger accounts.

Each transaction involves a debit or credit entry in an account. It is very much like an error-detection system and if, at any point, the sum of debits doesn’t quite equal the corresponding sum of credits, there is an error in your books.

Debits are the sum owed and are recorded on the left side of the double-entry book. Credits – such as income and other financial gains – are recorded on the right side.

Modern way

For anyone who dislikes the idea of buying hard-backed books, don’t worry! Technology means bookkeeping is a lot easier than it used to be.

Software has been developed over the years which allows transactions to be tracked simply, even via smartphones.

You may have heard of Xero or Quickbooks. These and other platforms allow you to keep records without fearing you may lose the receipt or piece of paper given.

At Concept Accountancy, we are official partners of Xero or Quickbooks, but we also work with other types of bookkeeping software as each offer something different to the user.

Whether you use paper or software, bookkeeping is something you can’t ignore. If you’re still unsure or want to know more about our bookkeeping services, you can contact us today for details.

Self assessment explained

Written by Mark. Posted in News

Self Assessment online Newcastle Accountant Concept Accountancy

Self assessment tax return deadline day is a date that sticks in the mind of everyone who has to fill one in: 31 January. 

And since the 2020 deadline has now passed you’re probably going to put 31 January 2021 to the back of your mind. But we’d advice you don’t do that!

As an accountant for many years, I’ve seen many people relax in February after rushing to hit the deadline. They often vow not to do it next time.

Fast-forward to the following January, and they’re stressed out as they realise they’ve left it to the last minute again.

Our advice is to make sure you start on your self assessment tax return now! Seriously, if you have to file in January 2021 then you can start assembling much of your paperwork from 6 April 2019 to 5 April 2020 immediately.

What is self assessment?

Most people assume self assessment is only for the self-employed. That’s not strictly the case!

You must fill in a self assessment return if you earn income other than as part of a PAYE (Pay As You Earn) scheme.

That’s the official definition, but what does it mean? Simply put, if you are an employee and are paid a wage you don’t need to fill in a return.

However, if you earn extra money from outside your normal employment, you may have to! For example if you’re a director of a company or have a property to let you are eligible for self assessment.

Self-employed people also need to fill in a tax return. These days it’s very easy to fill in online, but many people prefer to use an accountant because any mistakes could be costly. In the worst case scenario, you could even face a penalty!

Here is a full list of the people who need to fill in a return:

  • Your self-employment income was more than £1,000
  • Your income from renting out property was more than £2,500 (you will need to contact HMRC if it was between £1,000 and £2,500)
  • You earned more than £2,500 in untaxed income, for example from tips or commission.
  • Your income from savings or investments was £10,000 or more before tax.
  • You need to pay Capital Gains Tax on profits from selling things like shares or a second home.
  • You’re a director of a company (unless it was a non-profit organisation, such as a charity)
  • You, or your partner’s, income was over £50,000 and you’re claiming Child Benefit
  • You have income from abroad you need to pay tax on, or you live abroad but have an income in the UK.
  • Your taxable income was over £100,000
  • If you earn over £46,351 in the 2018/19 tax year (£50,001 for 2019/20) and make pension contributions you may have to complete an assessment to claim back the extra tax relief you’re owed
  • You are a trustee of a trust or registered pension scheme
  • Your State Pension was more than your personal allowance and was your only source of income
  • You received a P800 from HMRC saying you did not pay enough tax last year.

How to fill in a return

The self assessment tax return allows you to report to HMRC the details of your income. Once it has been completed they will work out what tax you need to pay by 31 January the following year.

As well as income details, the return will ask you for details on dividends and interest on shares; records of expenses relating to self-employment; contributions to charities or pensions that are eligible for tax relief and records, such as a P60, for any tax you’ve already paid.

Before you do any of that, you need to register for self assessment if you’ve never filed online to HMRC before. 

Once you do that, HMRC posts a code to you. They never telephone so anyone calling you saying they’re from HMRC is bogus, so wait until your code arrives through your letterbox.

It takes around 21 days 

Once you log in, the online form takes you through the process and reacts to your answers. Take your time 

For more information, visit the self assessment page on the HMRC website.

When should I fill in my tax return?

As soon as you can. It’s more likely you’ll make a mistake if you rush, so don’t leave it until December or January. 

If you use an accountant, make sure they have all your paperwork as close to 5 April as you can. And it isn’t about making your accountant’s life easier! If you know how much you owe you’ll have more time to collect the funds to do so. A late return could mean you owe more than you expect.

Also, if you don’t file your return by 31 January, you will face a £100 penalty. You’ll receive another penalty after three months and then £10 A DAY after three months! It’s really not worth delaying.

Ultimately, self assessment shouldn’t be a big issue. At Concept Accountancy we like to make sure our clients don’t leave things to the last minute.

If you’re ever unsure or need advice, we’re always happy to talk to you about your self assessment tax return. We are based on the riverbanks of the Tyne in Newcastle so close enough for you to arrange a meeting. If you need to talk to us contact us today.

HMRC own goal

Written by Mark. Posted in News

Findings at a recent tribunal have unearthed some crafty goings on at the tax office.  60% of their properties are being held in an offshore company, which of course doesn’t pay UK tax.
Senior revenue and customs officials appeared before the public accounts committee today to be told that their department scored a “massive own goal” by using an offshore company to manage its properties
Read the full article here

Concept Accountancy

23 Riverside Studios
Amethyst Road
Newcastle Business Park
Newcastle upon Tyne
NE4 7YL

0191 603 1760

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Company number 07960449

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