We might be months away from the tax returns deadline but with the credit crunch now in full swing, it has never been more important to have all your financial records organised. Andy Hardy, Development Director at TaxCalc.com, offers his Top Tips on how to stay on how not to get caught out by the taxman.
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Keeping good records is vital in business. It might seem like a challenge, particularly when you are first starting out, but keeping your records organised will bring many advantages to your business, including:
• Helping you to avoid paying too much tax and makes filling in your tax return much easier
• Helping to avoid interest and penalties by enabling you to pay the right amount of tax at the right time
• Generating information which can help manage and grow your business
• Making it easier to get a loan
• Helping you to budget for tax payments
• Helping HMRC check that the correct amount of tax is being paid
• Helping you support claims for some reliefs or capital allowances.
Therefore it makes sense to do it properly and to make things as easy for yourself as possible. Here are my top tips on keeping your financial records organised:
Set up a system
It doesn’t matter whether you use a special account book or use a software package as long as you set up some kind of system to keep all your information together.
Keep all your records
Bank statements, receipts, bills, invoices and bank books are all vital for keeping proper accounts but make sure you update them regularly, rather than letting them pile up.
Review and organise the clutter
Many people stuff their bank statements into a drawer without ever reading them. Don’t do this, you should always ensure that you check each statement for accuracy. Keep receipts and mark them off as they appear on your bank statement. In addition, it is equally important that you keep all bills so you can check they’ve been paid and that the payment has been received successfully.
If you’re self-employed you’ll need to keep hold of your statements, receipts and other relevant documentation for tax calculation purposes (see top tip below for time periods). If you are not self employed, I advocate that once you’ve checked all is correct you destroy and get rid of unnecessary and untended paperwork, which will slow your business down in the long run. Remember to shred paperwork that contains personal information to protect yourself from identity theft.
Keep your records for as long as required
There are time periods for which you must keep records. For example, by law you must keep records of all your business income and expenditure for five years. This is because not only might you want to look back on them but HMRC might wish to see them if there’s any uncertainty regarding your tax affairs.
Be efficient
By taking a few moments to record all your ongoing projects it will be easier to raise an accurate invoice and will save you time in the long run. Always ask for a buy order number and quote it on your invoice. Raise the invoice immediately after the job has completed and be very clear about your payment terms.
Reassess your suppliers
Many companies become too familiar with suppliers and forget to ask them for bulk loyalty discounts. What effect would a five or 10% reduction in costs have on your profits? Take another look at the market place and discover what new suppliers are charging to see if you are getting a fair price.
Sort out your tax return – before the deadline!
Rather than waiting until the deadline, complete your return as soon as possible. The tax year runs from the 5th of April each year, and accounts are due the following October. If you want to work out your tax yourself, you can submit your return by the 31st January on the following year.
Commercial software like TaxCalc contains links to wizards and calculators which will compute the more complicated entries for you from your figures, making the whole process much less complicated.
TaxCalc also has the added benefit of allowing users to have complete control of their data and prepare returns offline. This means that if HRMC’s site crashes again, as it did in January this year, TaxCalc users won’t be affected.”
In addition, TaxCalc’s Secure World wide web Filing confirms instantly that the return has been received by HMRC, that the data has been captured and that the calculations concur. Tax Refunds, if they’re due, are also paid more swiftly if the return is filed on the internet.