Frequently Asked Questions
Looking for the Profit First FAQ?
How long do I need to keep my accounting records?
If you're self employed you must keep your records for a minimum of 5 years after the filing date for that tax year e.g. the filing date for the tax year 2020-2021 is 31st January 2022 - so you should keep your records until at least 31st January 2027. If HMRC have launched an enquiry into your tax affairs then you must keep your records until at least the completion of the investigation. Timescales for limited companies are longer- you must keep your records for 6 years and 10 months after the period to which they relate e.g. your year end is 31st Dec 2024, you need to keep your records until 31st October 2031.
Do I NEED an Accountant?
There is no legal requirement for you to use the services of an accountant (unless you are required to complete a statutory audit) or bookkeeper, but you do have a legal obligation to keep financial records and provide correct information to HMRC. If your circumstances are straightforward i.e. one income source from self-employment and minimal expenditure, you have an understanding of tax and you have the time to file accounts, then you may be able to do it yourself. However, if your circumstances are complicated or you have multiple revenue streams, or simply don't have the time then you may need to hire a professional.
What are the benefits of using an accountant?
Accountants spend years studying different aspects of taxation that most people are not aware even exist. Training is heavily regulated and accountants must pass exams and have experience in all aspects of work they wish to undertake. We are also bound by a Code of Ethics set out by our governing body and subject to sanctions where these rules are not adhered to. Accountants understand the best way to minimise your tax liability and how best to utilise losses and the various allowances available to you. It's worth noting, however, that not all accountants are the same- sometimes you may need specific advice from a VAT expert, someone who is audit registered, or someone who is licensed to work with Charity accounts (for example). A good accountant isn't a cost - it's an investment in your business's future success.
Is it better to be a sole trader or limited company?
There are great many differences between sole traders, partnerships, CICs, LLPs, and Limited Companies and each one has their own benefits and drawbacks. One of the main differences is the way that each are taxed, and the way that earnings are taken from the business. For sole traders it is relatively straightforward- you pay Income Tax and National Insurance at a similar level to employed workers with the key difference being that you can deduct certain expenses from your income before paying tax. The treatment for partnerships is similar to that of sole traders. Limited companies require a greater amount of record keeping and are governed by more stringent rules and regulations. Limited Companies pay Corporation Tax on profits and are separate legal entities from their "owners". "Wages" can be taken as dividends, via PAYE or a combination of the two, and the tax treatment is different from that of sole traders and partnerships. There are a great deal more differences and a great deal of thought needs to be had before choosing a particular business structure.
Should I have a limited company for each restaurant?
Deciding whether to have a limited company for each of your restaurants can be a strategic move, but it comes with its own set of pros and cons. You can read more about this by clicking on the link below.
What is Marginal Relief for Corporation Tax?
The small business tax rate in the UK varies based on the company's taxable profits. For the 2024/2025 tax year, the Corporation Tax rates are structured as follows: 1. Small Profit Rate: 19% for companies with taxable profits under £50,000. 2. Main Rate: 25% for companies with taxable profits over £250,000. 3. Marginal Relief: For companies with profits between £50,000 and £250,000, marginal relief is available, which effectively provides a gradual increase in the tax rate from 19% to 25% as profits increase within this range​. These rates ensure that smaller businesses benefit from a lower tax rate, while larger businesses contribute a higher rate.
How to calculate GP on your food menu
Calculating gross profit (GP) on food menu items is crucial for understanding your profitability. Here's a straightforward guide: 1. Identify Costs: First, determine the cost of ingredients for each menu item. Ensure all calculations are exclusive of VAT. 2. Selling Price: Note the selling price of the menu item, again, excluding VAT. 3. Calculate Cost Percentage: Divide the cost of ingredients by the selling price to get the cost percentage. For example, if the ingredients cost £3 and the item sells for £10, the cost percentage is 30%. 4. Gross Profit Calculation: Subtract the cost percentage from 100% to get the GP percentage. In our example, 100% - 30% = 70%. This means your GP is 70%. 5. Gross Profit Amount: To find the GP amount, subtract the cost of ingredients from the selling price. So, £10 - £3 = £7 GP. Example Calculation: Ingredients Cost: £3 Selling Price: £10 (excluding VAT) Cost Percentage: £3 ÷ £10 = 0.30 or 30% GP Percentage: 100% - 30% = 70% GP Amount: £10 - £3 = £7 Remember, keeping your costs in check and understanding your GP can help you make informed pricing and menu decisions.