Essential accounting tips for new startups in Scotland

Starting a new business is an exciting journey filled with opportunities and challenges, with accounting being among the most important to grapple with right from the outset.

Proper financial management not only ensures compliance with legal obligations but also provides valuable insights into your business’s performance and aids in strategic decision-making. For startups in Scotland, understanding the unique financial landscape is therefore essential.

In this article, we’ll help by outlining some key accounting tips tailored for new Scottish startups to help set you on the path to success.

Choosing the right accounting software

Your accounting process is only as good as the tools you use, so it’s important to invest in some proper accounting software. The right one will streamline your financial processes, save time and reduce the likelihood of errors. When choosing accounting software, consider factors such as ease of use, scalability, integration capabilities and cost.

Here are some popular options for Scottish startups.

• Xero: Known for its user-friendly interface and robust features, Xero is a cloud-based accounting solution that offers real-time financial data, invoicing and expense tracking. It also integrates seamlessly with numerous third-party apps, making it a great choice for growing businesses.
• QuickBooks Online: This software is ideal for startups looking for comprehensive accounting tools, including payroll management, tax preparation and inventory tracking. QuickBooks also offers localised support for UK-based businesses, ensuring compliance with HMRC regulations.
• FreeAgent: Specifically designed for small businesses and freelancers, FreeAgent simplifies tasks such as invoicing, expense management and time tracking. It also provides automatic updates for UK tax deadlines and obligations.

Evaluate your business needs and budget before settling on a platform. Many software providers offer free trials, letting you test functionalities before making a commitment.

Your tax obligations

Running a business comes with a lot of tax obligations that you will have to contend with. Make sure you understand which taxes apply to you so you can fully research your responsibilities.

• VAT: If your business’s taxable turnover exceeds £90,000 in a 12-month period, you have to register for VAT with HMRC. Once registered, you must charge VAT on your goods and services and pay the money you collect to HMRC via regular VAT returns. Make sure you know which VAT rate you should apply to your goods and services, and which VAT scheme could benefit you to simplify the entire process.
• Scottish income tax: If you’re operating as a sole trader or partnership, you’ll pay income tax on your profits. Scotland has its own income tax rates and bands that are different from the rest of the UK. Make sure you’re familiar with these rates and how they apply to your earnings.
• Corporation tax: Limited companies in Scotland must pay corporation tax on their profits. The current rate is 25% on profits exceeding £250,000 and 19% on profits of £50,000 or below. Profits between these rates are taxed at 25% and are eligible for marginal relief. You must file a corporation tax return annually, even if you make a loss or have no tax to pay.
• National insurance contributions (NICs): Both employers and employees are required to pay NICs. Understanding the different classes and rates is important to ensure compliance and avoid penalties.

Consider consulting with a professional accountant or tax adviser familiar with Scottish tax laws to help you navigate these obligations effectively. They should also be able to help you devise a strategy to reduce your tax liability.

Keeping accurate financial records

Maintaining precise and up-to-date financial records is not only a legal requirement (for companies) but also vital for monitoring your startup’s financial health.

Make sure you’re following these best practices.

• Regular bookkeeping: Record all financial transactions as they come through, including sales, purchases, receipts and payments. This will help you identify cashflow issues early while simplifying the tax return preparation process.
• Organise documents: Keep all invoices, receipts, bank statements and payroll records organised and easily accessible. Digital storage solutions can help in maintaining and backing up records efficiently. This will make sure you don’t lose anything or have to scramble through unorganised documents to find a crucial piece of information.
• Reconcile accounts monthly: Regularly reconcile your bank statements with your accounting records to identify and rectify discrepancies.
• Use accounting software: Use your accounting software to automate and streamline record-keeping processes. This will save you a lot of time and reduce the chance of errors in your work.
• Prepare financial statements: Regularly prepare and review financial statements such as balance sheets, income statements and cashflow statements to gain insights into your business’s performance.

Accurate financial records are essential for securing funding, managing budgets and making informed business decisions. Never underestimate their importance or let yourself fall behind – talk to an accountant if you need some help.

Leveraging regional grants and support

Scotland offers a wealth of grants and support programmes aimed at nurturing startups and fostering economic growth. Being aware of and accessing these resources can provide significant financial assistance that will help get you started properly.

Key programmes and grants

• Scottish Enterprise: This government agency offers various grants and support services, including the SMART: SCOTLAND grant for research and development projects.
• Highlands and Islands Enterprise (HIE): For startups located in the Highlands and Islands region, HIE provides financial support, advice and access to networks to help businesses grow.
• Business Gateway: Offers free advice and support to Scottish startups, including workshops, events and one-on-one mentoring.
• Scottish EDGE: A competition-based grant providing significant funding to innovative, high-growth potential startups.
• Royal Bank of Scotland Entrepreneur Accelerator: Provides free coaching, mentoring and office space to startups looking to scale their businesses.

Make sure to take the opportunity to research and apply for grants and programmes relevant to your industry and business stage. These resources can provide not only financial support but also valuable expertise and networking opportunities.

In the meantime, get in touch with us. As accountants and business advisers, we’ll help you build an accounting and financial management system that will help you achieve your business goals.