The world of finance and money-related matters can often seem confusing. Everyone wants to manage their money effectively, but knowing how best to do this can feel complicated and sometimes overwhelming. The relationship between taxation and accounting and understanding the differences between the two is something that can often appear confusing. So, it is helpful to clarify the relationship between taxation and accounting and what this means.
The Differences Between Taxation & Accounting
To understand the link between taxation and accounting, it is first helpful to familiarise yourself with the differences between the two.
Taxation
Paying tax is a concept everyone is familiar with and is a government policy that generates income for the state to be used on expenditure towards healthcare, benefits, and education, to name just a few. The tax you pay is calculated as a percentage of your earnings. So, if you are self-employed, tax is calculated as a percentage of your profits once expenses have been deducted. The amount of tax you pay is based on your earnings and your income bracket; if your income falls below the tax threshold, you won’t pay any tax, but as your amount of taxable income increases, the tax bracket you find yourself in will also increase.
Accounting
Accounts are a way to record incoming payments and outgoings. Accounting is used to keep track of finances and can be used to collate financial information. This information can then be used to record expenditure and analyse the figures. Keeping accounts is essential for businesses and organisations and provides a permanent record of the amount of income that is generated and the expenses the company has incurred.
The Link Between Taxation & Accounting
While taxation and accounting may seem like two separate entities, there is a strong relationship between the two. Accounting is essential for taxation purposes. Paying tax is a legal requirement, and the amount of tax you pay will depend on the accounting information you submit. So, taxation depends on accounting to provide accurate information for tax purposes. In contrast, accounting can be independent of taxation. Accounting can be used simply for the purposes of recording expenditure and incoming funds. In this situation, keeping accounts can be used for the sole purpose of keeping financial records and to inform financial decision-making.
Professional Support for Your Taxation and Accounting Needs
Thoroughly analysing your accounts and keeping track of your incoming payments and outgoings is essential to make informed business decisions, but it can be challenging to do this yourself. Understanding taxation and addressing any queries you have can also be time-consuming and confusing to handle.
Learning more about the relationship between taxation and accounting and seeing that tax accounting is not always the same as keeping accounts can be complicated. But, working with a taxing and account specialist such as SS Taxation and Accounting Specialist Services will provide the support you need with your financial affairs. Get in touch today to discover how the team can help with your accounting and taxation needs.
