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What is a Tax Accounting? 

Managing taxes is an important activity while running your business and for that, you will need to understand tax accounting. While operating your business, you will be focused on producing financial statements such as balance sheets and cash flow statements. However, in this process, you might need to pay more attention to tax accounting, which is no less important. No matter your business size, it is vital to have a deep understanding of tax accounting; this blog will help you with that.

What is Tax Accounting?

Instead of making financial statements, tax accounting concentrates on company tax returns and managing payments. You can make tax strategies and reduce tax liabilities while staying compliant through tax accounting. Also, you will get an insight into your company’s financial health and operational efficiency.

For a UK-based business person like you, your business size and structure will decide the type of tax return you are responsible for and whether you must register with HMRC. Under tax accounting, your business’s revenue is considered while working out on taxable income, which also includes government credits you are qualified for. For this reason, taxable income becomes different from what is stated on the income statement. Furthermore, the taxable income is subjected to HMRC regulations, which are updated yearly.

If your business is small, setting up a business tax account with HMRC is going to be simple, and you can handle it yourself. However, if you are the owner of a large company, you have to use the services of a corporate accountant due to multiple complicated returns and reporting requirements.

Elements in Tax Accounting

In tax accounting, two important items are considered: current-year liability and future liability. Let’s understand them better:

∙Current Year Liability: It is based on your estimated income taxes payable or refundable for the current tax year in question.

Future Year Liability: Once you have taken care of your current liabilities, you also have to start thinking about future liabilities. This will help you in planning
and estimating the tax payments.

The tax account includes many factors, such as expenses, profit, and loss; even tax credits and interest earned will be included.

Importance and Role of Tax Accounting

Understanding the importance of tax accounting is necessary because it can play a significant role in your business. Tax accounting helps maintain discipline in tax compliance, which is important considering that without it, operating a business efficiently would be impossible.  

The main objectives of tax accounting in business are as follows:

  • ∙Making sure your business is fully compliant with tax laws
  • ∙Reduction in tax liability
  • ∙Providing help in tax planning

You can streamline operations and increase productivity by successfully implementing tax accounting for your business. You can reduce tax liability, thus increasing your after- tax profits by claiming all allowances and tax deductions. Apart from taking care of the present, strategic tax planning will also secure your future. Under it, you will be able to plan your future growth after considering the tax implications.

How to Manage Business Tax Account

Your employee’s income tax will automatically be deducted from their salaries, but you must file a self-assessment tax return with the HMRC. In order to manage your HMRC tax account, you will have to keep the following business records:

  • ∙Sales and income
  • ∙Business expenses
  • ∙PAYE records
  • ∙VAT records

These records must be stored in your tax account for at least five years. If you are using accrual accounting, you will also have to get year-end bank balances along with the remaining inventory value.

Another key point that you must not forget is corporation tax, which you must consider in tax accounting. If your business is liable to pay corporation tax, then you must submit a company tax return to the HMRC at the end of the accounting year. The information to be submitted will include profit and loss as well as payment owed.

VAT in Tax Accounts

VAT can be handled when you manage your tax accounts with HMRC. Before that, you must know whether you must register and pay VAT. Here are some minimum requirements for getting registered for VAT:

∙Your total VAT taxable turnover for the last 12 months was over £90,000 (the VAT threshold)
∙You expect your turnover to go over £90,000 in the next 30 days

If you are finding yourself overburdened with this responsibility, then you can avail yourself of our VAT services offered by our VAT specialist. Our professional and experienced specialist will partner with your team to complete the job.

When to Use a Corporate Tax Accountant

We are confident in your accounting team’s capabilities to manage your HMRC tax account. However, we advise that you hire a corporation tax accountant to deal with complex accounting tasks.

A professional and experienced corporation tax accountant can help in managing specific complex tax account issues, which are as follows:

  • ∙Risk mitigation
  • ∙Business growth
  • ∙Corporate tax
  • ∙Efficiency analysis
  • ∙Internal audit procedures
  • ∙Changes to tax procedures

By having a good corporation tax accountant, you can manage multiple complex problems and positively impact your business operations. The accountant will help you prepare for future tax payments so that you are better prepared for the next tax year.

To enjoy the benefits of a corporation tax accountant, you will either have to hire one in your business or you can avail of the accountant’s services through our corporation tax services. Our accountants can collaborate with your team and help you to overcome complex tasks related to corporation tax.

To conclude, we would like to say that we understand running a business is not an easy responsibility, but handling your company’s taxes is even more important. After all, without managing and planning for taxes, you may risk non-compliance. Also, you may miss out on opportunities to reduce your tax liabilities, thus unnecessarily burdening your business.

This blog will help you understand the importance of tax accounting and its complexities. Speaking about complexities, if you are finding it challenging to manage tax accounting, especially when it comes to corporation tax, our corporation tax services are always there to help you.

Furthermore, CoxHinkins also offers year-end, payroll, bookkeeping, management, and VAT services, to name a few. Our accountants are well-trained in Xero, QuickBooks, and Sage accounting software, and we have designed our services to give your business an edge in the market, thus saving you time to invest in other important tasks. We can connect at your convenience by phone or online meeting to discuss our services in detail.


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