First-time business owners often find it confusing and difficult to keep good track of their finances and to develop a good overview of how things are going – especially if they have no previous experience with this.
How does VAT work? What is an annual report? And how do you go about filing a tax return?
To make things a bit easier, we have gathered together a few accounting tips to keep in mind when setting up a new business in Denmark.
1. Keep track of your obligations
The first thing you need to do when setting up a business is to create a tax ID number. Once you have a tax ID number, you will then have to comply with certain obligations depending on your business type.
You will need to report your VAT, and if you are running a larger company such as a stock-based company or a private limited company (A/S and ApS in Denmark, respectively), then you will be legally required to produce an annual report. You will also need to report salaries, no matter whether you pay wages to employees or just to yourself.
It is, therefore, a good idea to familiarise yourself with all of the obligations that apply to your specific business type.
You can find more information about different business types here.
2. Get to grips with VAT
Generally speaking, all of the services and/or goods that you sell will need to have sales tax applied to them.
VAT is determined by the sale price of the good and it is the seller who is responsible for deducting VAT from their transactions. A good way of managing this is to automatically set aside 20 percent of every sale as VAT. This will keep you from spending more money than you actually have and it will help you keep track of how much VAT you owe to the tax authorities.
It is important to mention that different scenarios can apply when it comes to VAT and the sale of goods/services, but the general rule of thumb is that all businesses need to charge sales tax.
VAT needs to be reported to the tax authorities. If your turnover is less than DKK five million, then you only need to report your VAT every six months, and this is the situation for most smaller or new businesses. However, if your turnover is between DKK five and fifty million, then you need to report VAT once per quarter. You can also choose to pay VAT quarterly, even if your turnover is less than DKK five million each year.
3. Save your receipts
Not everyone thinks to keep their receipts. But if you do not have a receipt for a certain expense, then you will be unable to claim a tax or VAT deduction for the expense in question.
Hence, we recommend that you always keep hold of your receipts. A good tip here is to scan them in or otherwise store them digitally and thereby reduce the risk of receipts going astray. If you use a digital accounting program, this will give you the option to securely store your receipts in the cloud.
4. Keep track of your business’ finances
As a new business, it’s very important that you keep good track of your finances so that you know whether you have a healthy business or if you need to make any adjustments to the way your business operates. You don’t need to master every last accounting rule in order to get a general overview, but if you don’t want to figure it out alone and find yourself in need of help, then find somebody who can answer your questions and give you advice. Digital accounting programs can be of great help in this regard, as they allow you to easily keep track of your transactions and quickly get an overview of your business.
5. Drop Excel
We would not recommend using Excel in place of a proper accounting program. In fact, doing so is actually illegal under section six of the Danish Bookkeeping Act as it allows you to change your records without these changes being traceable. Nonetheless, many people use Excel as a ‘cheap’ alternative. This can quickly become a rather expensive approach, though, if your computer happens to crash (and you haven’t got a back-up) or if a specialist comes in to inspect your accounting records. Using Excel also increases the risk of human error in your bookkeeping, leaving you with inaccurate or incomplete accounts.
6. Digitise your accounting program
Digitising your accounting program can be enormously advantageous, for example, by using Billy. Billy makes it easy for you to get an overview of your finances and it can automate several aspects of your bookkeeping, allowing you to focus on your business instead. All your data is permanently stored in the cloud, so you can rest assured that you are in compliance with bookkeeping legislation. At the same time, you will be able to calculate your VAT with a single click and gain access to support whenever questions arise.