SEARCH, INDEX, UPDATES, CONTENTS, bookkeeping - confidence in your records
To operate a business in a competitive and changing market is a challenge which should be the focus of your concentration.
If you keep appropriate records, or have them kept for you, you should be able to rely on the accuracy of those records, and be able to use them to answer any questions which might arise in an HM Revenue and Customs investigation.
Whether you keep your records personally, of you employ a bookkeeper to do so, you should set up systems which ensure that your records are complete.
A very high percentage of the accounting records received in our office do not record all the transactions through the business bank account. Often there are cheques which have been omitted in error, or standing orders or bank charges. Writing out a bank reconciliation once a month should take only a few minutes, but will identify any transactions which have not been correctly recorded.
If you employ a bookkeeper, arrange for your bookkeeper to provide you with a photocopy of the end of month bank statement, and a bank reconciliation which shows details of all the outstanding items. It will take you less that one minute to look at it and know whether there are any items which have been outstanding more than a few days.
Keep your personal finances separate from the business records as much as possible. Record the source of any money paid into your personal accounts on your bank statements, passbooks etc, and keep your personal statements, including credit card accounts, for at least six years. Some people pay personal expenses from the business account and treat these items as drawings. While that is perfectly legal, we do not recommend it. Restrict your drawings to cheques or transfer from the business account to your personal account.
HMRC know that taxpayers do not always report the whole amount of their taxable income, or sometimes overstate their business expenses. We have seen cases which prove that HMRC are right about this. Unfortunately it does cause HMRC Inspectors to look at all business records as potentially incomplete. Unlike the general rule in English law that someone is 'innocent until proven guilty', if HMRC can find any weakness in a set of records, they consider the onus is on the taxpayer to prove their innocence. As soon as the business is big enough to employ other people, try to establish procedures where they would know if the business records understate the profits. That may seem difficult, but having someone else record all the sales invoices would make it harder for you to 'forget to record a sale'.
If you systematically record every potential enquiry, your response to that enquiry, a copy of any estimate that you prepared, the customers response, a copy of the delivery note, invoice, receipt, together with a personal appointments diary and time records, you sequentially number all your documents, and you record them daily - then HMRC will not be able to identify any unrecorded income.
If you keep records of your business mileage, get receipts whenever possible, keep invoices and any estimates which detail the work done on those invoices, and adjust for the private portion of any expenses, HMRC will not be able to disallow your expense claims.
Especially at the start of a new business, you will have a passion for the business, and the last thing you will want to do is bookkeeping, which will be left until the end of the day when you may be tired. It could become a chore which gets put off and in a vicious circle becomes harder to do and easier to put off again..... Better to celebrate your success by -
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