Here are some top tips from Emily Coltman to help you brush up your bookkeeping and get your business set for fresh new growth in the months ahead.
Now that winter is winding down and self-assessment season is over for another year, it’s a great time to start thinking about how you could do some early spring cleaning to tidy up your figures and make your business more efficient.
Review your transactions for VAT
If you’re registered for VAT, it’s not always easy to know how much you should charge to your customers and how much you can reclaim on your costs.
What you charge to your customers depends on which goods and services you sell. If you’re not sure whether a particular item should be standard-rated, reduced-rated or zero-rated, or exempt or outside the scope of VAT, check HMRC’s guidance or ask your accountant for confirmation.
You’ll often be charged VAT by your suppliers and you may be able to reclaim this, but you can’t reclaim all the VAT you’re charged. For instance, if the cost you’ve incurred relates to exempt sales, or if you paid to entertain clients, you can’t reclaim the VAT on those costs.
Look back at how you’ve paid for your costs
You may pay for business costs from the business’s own bank account, or from its credit card, or from your own back pocket. Make sure that you’re tracking these separately, so that you can easily see how you paid for each cost.
This is important because if you want your business to pay you back for costs you’ve personally paid for, then you need to accurately track the amount it can pay you. If your business is a limited company, you could pay more tax if the company pays you back more than it owes you.
Also, if your bank balance in your accounts doesn’t match what’s on your bank statement, a visiting HMRC inspector could be concerned that you’re concealing income and charge you more tax.
Review your books and make sure you’ve put all your costs where they belong.
Is your categorisation consistent?
When you’re deciding which category to put your costs into, such as stationery or postage, you may well find that some of your business’s costs could easily go into more than one category. For example, a monthly subscription to a software provider could be Computer Software or Subscriptions.
While there may not be clear-cut guidance from HMRC about which category to choose in these situations, make sure you allocate these costs consistently as they recur. That way, if your accountant needs to move the cost to a different category for tax reporting, it’ll be quicker for them to do that. Also, it’s much easier for you to track how much you’re spending in each category if you always put the same costs in the same places.
Go back over your historic transactions and make sure that you’ve categorised your costs consistently.
Close any cancelled invoices or bills
You may have had to cancel an invoice that you’ve issued to a customer, or a supplier may cancel a bill they’ve given you. If this is the case, make sure these items aren’t showing in your books any more. Usually the best way to do this is by creating a credit note and netting this off with the invoice or bill. This will also reduce the income or cost accordingly in your profit and loss account.
Review your banking
Think about the service you’re getting from your bank.
How much are they charging you for your account, and for other services like cheque payments and foreign currency payments? Might another bank offer services you require at a more reasonable price, perhaps because they charge more for services you don’t use?
Take some time now to review what your bank offers, because there may come a time when you need to ask them for extra services (such as a loan, or insurance), and you need to make sure that they’re the best provider for you.
Emily Coltman is chief accountant at FreeAgent.
Further reading on tax
See also: Ten ways to finance your business