On October 1st, the Long Eaton Chamber of Trade hosted an incredibly informative session featuring Zoe Bishop from RDG Accounting. Zoe delivered a valuable talk on essential accounting topics, offering practical advice to local business owners.
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If you’re running a business—whether you’re an established Limited Company or a Self-Employed individual—the insights shared on bookkeeping, Making Tax Digital (MTD), and the intricate dance between profits and dividends are vital for sustainable success.
Here’s a breakdown of the key areas covered:
The Benefits of Bookkeeping
Making Tax Digital (MTD) Explained
Accounting Best Practices for Businesses
Profits, Dividends, and the Directors Loan Account
Why Proactive Bookkeeping is Your Business Superpower
As accountants, we often see business records in disarray—more often than we’d like! Keeping your business bookkeeping up to date is the single most effective way to gain financial clarity. By tracking income and expenses regularly, you stop running your business “in the unknown.”
Waiting until year-end to look at your numbers is a dangerous game. Regular financial data review allows you to:
Improve Budgeting and Cashflow: Spot trends and manage your money effectively.
Speed Up Decisions: Make financial choices—like investments or price changes—without delay.
Pinpoint Issues: Quickly identify problems with margins, costs, or even potential fraud.
Reduce Accountancy Costs: Tidy records mean less time for your accountant, saving you money!
Attract Investment: Clean, current financials make your business appealing to investors and lenders.
In short, staying on top of your bookkeeping saves you time, money, and stress!
Making Tax Digital (MTD): Get Ready for the Change
Making Tax Digital (MTD) has been gradually rolling out, starting with VAT returns. The next major phase targets Self-Employed individuals and Landlords.
This will be a phased introduction based on annual income:
April 2026: MTD applies to those with annual business/property income over £50,000.
April 2027: MTD extends to those earning between £30,000 and £50,000.
If you fall into these brackets, you must digitalise your records using HMRC-approved software. Instead of one annual Self-Assessment return, you will be required to submit quarterly updates and a final declaration by January 31st each year—a total of five submissions!
The benefits of MTD include:
Real-Time Tracking: Track your tax liability as you go.
Accuracy: Reduces errors and improves record-keeping.
Easier Budgeting: Makes setting aside money for tax bills less painful.
MTD Penalties: Be aware that missing quarterly deadlines or failing to sign up on time can result in fines under HMRC’s points-based system.
Top Accounting Best Practices to Adopt Now
Zoe stressed the importance of adopting good habits to maintain financial health:
Set Aside Tax Money: Put a percentage of every sale into separate “pots” for VAT and Corporation Tax (e.g., 20% each). This prevents you from accidentally spending money owed to HMRC and helps manage potential Directors Loan Account issues.
Regular Digital Bookkeeping: Use an integrated software like Xero, QuickBooks, or Sage with bank feeds to keep your records current. Tools like Hubdoc can scan receipts directly into the system, meaning you no longer need to keep paper copies! Future software will even incorporate AI, allowing you to ask questions directly to your accounts (e.g., “How much do customers owe me?”).
Prioritise Cashflow Forecasting: Having a cashflow forecast allows you to look ahead, spot potential shortfalls, and fix problems before they become crises.
Utilise Management Accounts: Regular management accounts help with effective tax planning and ensure you are on track to meet your business goals.
Understanding Profits, Dividends, and the Directors Loan Account
This is a critical, yet often misunderstood, area for Limited Company directors who are also shareholders.
Profits and Dividends: A company makes a profit or loss after all expenses and taxes. Dividends are payments made to shareholders from those profits. A company must be profitable (or have retained profits from previous periods) to legally pay a dividend.
The Directors Loan Account (DLA): Most director-shareholders take a small, tax-efficient salary (often near the National Insurance threshold, currently £12,570) and top up their income with dividends. Any other payments taken from the business throughout the year go into the DLA. This is a “virtual pot” on the balance sheet tracking money owed to or by the director.
DLA at Year-End:
Your accountant reviews the DLA. If the director has taken out more than they’ve put in (making it overdrawn), they will first declare a dividend (up to the available profit) to clear or reduce the balance.
If the DLA is still overdrawn, the director owes the company money. This loan must be paid back to the business within 9 months of the year-end. Failure to repay results in a significant tax charge of 32.5% on the loan amount paid to HMRC (which is refundable once the loan is cleared).
If the DLA owes money to the director, that money can be taken out tax-free.
In Summary: Your Next Step
The clear message from the Long Eaton Chamber of Trade event is that proactive, digital record-keeping is no longer optional—it’s foundational to navigating HMRC compliance (like MTD) and achieving genuine business clarity.
If your bookkeeping is a headache, or you’re confused about the upcoming MTD deadlines, now is the time to speak to an accountant.
What is the one accounting habit you’re going to start adopting this week to get better financial clarity?