Staying on top of your company accounts – Book-keeping Dos and Don’ts
Accurate bookkeeping is a necessary evil when you run your own business.
There are three reasons you need to be on top of the money coming in and going out. HMRC will need information from you at some point; you need to know if you have enough cash to get you through the month (cash flow); and finally it’s good to know whether or not you are actually making a profit!
Here are your essential bookkeeping tips – the do’s and don’ts that will help you to stay on top of your accounts with a minimum of time and effort:
DO
Keep simple records of earnings and expenditure
Bookkeeping can be quite a basic system, where you record money in and money out. In a spreadsheet or even just a book, keep a record of money received in one column, and money paid in another column. You will need to break down how you spent and earned the money to get the information the taxman needs.
Get into the habit
Put aside a regular time each week or month to do your bookkeeping. Many owners of small businesses do it in the evenings or weekends.
Keep your paperwork safe
If your receipts are all over the place, it will make your bookkeeping an even harder task. Have a box that every receipt and paid invoice goes in. Keep cheque book stubs and other irreplaceable documents in a fire proof safe.
If you work from home, try to keep business paperwork away from personal paperwork… and remember that children + jam = sticky paperwork!
Give each invoice a unique number
Set up a simple system and stick to it. For example issue invoice 58, then 59, then 60. Not many new businesses want to start with invoice number 1 – it’s OK to start at invoice 50, as long as you have a note in your files to explain it.
Keep petty cash receipts
It’s easy to dip into the petty cash without recording it. Get into the habit of writing down what you spend petty cash on, and ensuring you get a receipt for everything.
Monitor turnover
If your taxable turnover for the last 12 months is over the VAT threshold, or could go over the threshold in the next month, you will have to register for VAT. The threshold is currently £82,000 (from April 2015).
Check your bank statements
Your statements should match your bookkeeping records. If they don’t then either you or the bank has made a mistake.
While it’s easy to use a simple spreadsheet, proper accounts software or an online accounting service will help you get more information out of your figures. It could also save you money, as it prepares information in a format preferred by your accountant.
Hire a professional bookkeeper
A qualified bookkeeper could be one of the best investments you ever make. They will help keep your company’s finances on track and give you the financial information you need, while you focus on what you do best.
TAX & NI
I advise all my clients to put aside 25% of any of their invoices into a separate account in order to account for Tax and NI and make sure that you can cover your tax bill. As from April 2015 all self-employed NI (Class 2 NI) is now taken from your self-assessment tax return.
Important dates for HMRC
Tax year starts on 6th April every year, if your accounting reference date (the date that you are actually trading from) can coincide with this it makes life a lot easier for tax purposes. Paper self-assessment return must be sent in by 31st October. Online tax returns by 31st January. If you have a tax bill to pay and you want it to be taken out of your PAYE code (if you have another job where you are employed or a pension) you must submit your tax return by 31st December at the latest.
When you have a tax liability this will have to be paid by 31st January each year, if your tax bill is £1000 or more you will also have to pay what HMRC call a payment on account, which they work out to be being ½ of your estimated tax liability for the following year, paid in advance which is paid in January and again in July. For instance if you owe £5000 to HMRC for 2014/15 tax year, you have to pay £5000 by 31st January 2016 plus an extra £2500 by 31st January 2016 and a final £2500 by 31st July 2016.
When it comes to the following year’s self-assessment (2015/16), if your business boomed during the tax year and you subsequently owe £6,000 in tax, you will have to make a £1,000 ‘balancing payment’, as you only paid £5,000 in payments on account during the previous year.
On the other hand, if you only owe £4,000 in tax, you will be refunded £1,000 as you overpaid via your payments on account during the previous year.
DON’T
Make paperwork complicated or look suspicious
Paperwork should be simple. The more difficult you make it, the more it looks like you are trying to hide something. One practice that some new businesses do is “skip” invoice numbers, to make it look like they have more clients than they actually do. This is bad practice, and could leave you open to a tax investigation down the line.
Get behind with your bookkeeping
Leaving great piles of paper lying around waiting to be processed is a sloppy way to run a business. Not only will you not really know what’s happening financially, but the chances of losing paperwork are higher.
Mix personal and business expenditure
This applies if you are a sole trader or run a limited company. Keep personal and business spending clear and separate. You should have different bank accounts, so ensure you are using the correct one. If you do accidentally pay for a business expense from a personal account, that’s OK, just claim the expenses from your business.
Throw anything away
You need to keep all paperwork including invoices and receipts for at least six years. Some accountants advise you keep records for longer than that, in case of any future investigation.
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