By Kevin O’Brien, Senior Business Partner, DTE Business Advisers
Staying on top of your bookkeeping is often a headache for business owners and managers, but failure to keep good records can be the Achilles heel of any great business, and in the long run, not keeping track of things can cost you more in time and penalities. Here I set out my 10 top tips for staying ahead of the game.
1. Decide on the appropriate accounting system for your business. Some businesses still prefer manual records. Most businesses use a computerised accounts package like Sage or Xero, but some businesses can still keep compliant records just on appropriately designed spreadsheets. Take early advice from an accountant on the best system for your business.
2. Keep your records up to date on a timely basis and do not leave it until a number of months have passed to ‘write up’ your books and records.
3. Keep personal and business bank accounts separate. It is essential to keep business and personal income and expenses clearly identifiable. In that way there can be no confusion for the tax man between the two. If you don’t keep them separate, preparing your accounts will take longer and incur you more cost, and if you are unlucky enough to have a tax inspection you will be required to give HMRC access to your personal income and expenditure.
4. ‘Balance the books’ on a regular basis, at least monthly. This includes a bank reconciliation, sales ledger, purchase ledger, petty cash and nominal ledger. Firstly this will cut down the amount of time needed by your external accountant in preparing your year-end figures for tax and statutory compliance, and secondly you will have some surety as to what profits you are making month on month and be able to budget for future tax liabilities.
5. Consider separate tax bank accounts to ensure funds are set aside for VAT, PAYE, income tax or corporation tax. These taxes may be sometime in the future, so make sure there are no surprises as often tax funds are used for other aspects of the business expenditure, including drawings.
6. Keep proper business mileage and expense records for such expenses as motor and travel. This is an easy area for HMRC to inspect if you are unfortunate to have an investigation. You can only claim for business mileage (home to office is not classed as business), and if you have a log of such mileage you can claim 45p per mile for the first 10,000 miles and 25p per mile thereafter, tax free. It’s important to keep it all logged as you go, and much less of a headache.
7. If you operate a cash business, there is an extra burden of keeping robust record as HMRC are more likely to review such businesses. If you operate a till, keep the till rolls and audit trails to evidence gross receipts and expenditure from the till before banking.
8. Comply with VAT and PAYE regulations. VAT and PAYE rules are becoming increasingly complicated and the onus is on you to comply with the rules. It may be appropriate to outsource these technical requirements to a professional bookkeeping service.
9. Make sure you keep your records and books of prime entry for the appropriate period for HMRC purposes. This is usually six years. If you are subject to a tax investigation, this is the minimum that would be expected. If you can't show sufficient evidence of your income and outgoings, you could end up paying more tax than you should. There are penalties for failing to keep proper records to back up a tax return or claim.
10. Employ a good accountant and business adviser who can assist with all of the above, leaving you to do what you do best – run your business.