Few people start up a business so that they can do paperwork! Spending time recording what’s going on in your business takes you away from doing business! However, keeping business records – bookkeeping – is a necessary part of business life because it’s a legal requirement. HMRC will soon be knocking at your door if you’re late getting the information to them that they require! Your books will not only keep you on the right side of the law, they will also help you to manage your business and to make decisions as the business grows.
Here are some tips that apply whether you’re a sole trader or a limited company.
Start your bookkeeping from day one
As soon as you’ve started to trade you need to be recording your business income (sales) and its costs (expenses). This will also include the money you’ve spent on getting the business started up like marketing costs, equipment costs or buying stationery.
And the important thing from here is to make sure that you keep up to date. Set aside time to complete your bookkeeping regularly – and keep all receipts for purchases and copy invoices for sales
Your financial records
There’s going to be three main sets of records
- Cash Book – which records the cash transactions; payment received from customers and payments made to suppliers
- Sales Ledger – a record of all the sales invoices that you issue to your customers
- Purchases Ledger – a record of all invoices received from your suppliers
In addition, you’ll have your bank statement so that you can verify that payments have been made or received through bank reconciliation
Use a bookkeeping system that suits
You will need to have a system to keep your records that suits you and the business. There are a number of choices ranging from software solutions in the ‘cloud’ to an Excel spreadsheet! If you’re going to be using an accountant for year-end accounts, you may well want to discuss this with them – using a system that they recommend could mean that you’ll save money on accountancy fees!
Separate personal and business expenses
It’s always best to keep your personal expenses separate from the business expenses for audit trail purposes. There will be no blurring of the accounts!
Maintain different bank accounts to show the separate business and personal transactions clearly. And remember to claim for all of your business expenditure – HMRC’s definition for this is ‘any costs that are wholly and exclusively incurred in the pursuance of your business’
Check out HMRC’s free workshops!
HMRC run regular webinars to show you how to register for self-assessment and to set up your own limited company. They’ll show and explain how this impacts on the record keeping that you will need to do in order to meet the requirements of legislation
Don’t miss the deadlines
There are a number of deadlines that you will need to meet depending on the type of business you’re running. For example, if you’re a sole trader then you’ll need to file your tax return at the latest by 31st January; co-incidentally this will be the deadline for your first payment of tax too! If you’re trading through your own limited company then you’ll need to be aware of the last date for filing your company tax return (12 months after accounting period ends) and for paying any corporation tax due (usually 9 months and one day after end of accounting period)
By Paul Lee, online business adviser, Mi Ventures