Bookkeeping is the recording and tracking of financial transactions in a business. It’s different from accounting, where the day-to-day recordkeeping is then analysed, reviewed, and reported.
It’s very important to make sure your books and records are kept up-to-date and accurate; I thought I would share some of the reasons in this article.
Informed decision-making
With up-to-date books and records, you can make informed decisions with accurate information.
When running your business, there are always financial decisions to make – how to develop your products and services, whether to outsource work, how much you spend and how much you save. Unless you have accurate records, you may not be aware of the realities of your financial position.
Accurate tax calculations
With accurate bookkeeping, your tax calculation is likely to be more accurate as you are less likely to have forgotten something. Not only will this give you increased confidence in your return, but it will also reduce the likelihood of queries from HMRC in the future.
Anticipating threshold changes
Knowing in advance as you or your business approaches a tax threshold change is incredibly important. For your own income tax situation, you’ll have a clearer picture of any future tax demands. When it comes to the VAT threshold of £90k turnover, which requires timely reporting, not anticipating this could result in fines and interest charges.
Avoiding fines
As a limited company, you could be fined up to £5000 for inadequate bookkeeping; it’s certainly not worth taking that risk!
Making tax digital
In the next few years, digital submission of returns using cloud-based software will become mandatory for all companies. Setting up the right systems now will ensure you understand what’s required and that you have everything in place. See Understanding Making Tax Digital.
Although the TV and radio adverts are keen to imply that by using their software, it is really easy to do your own bookkeeping, it actually isn’t that easy! Unless your accounts are really simple or you have a good grounding in double-entry bookkeeping yourself, it is always better to refer to a bookkeeper.
Working together with a bookkeeper can keep you on the straight and narrow, and you can always divide up the work between you so that you are not necessarily paying them to do it all. For example, you might raise your own sales invoices and do your credit control, but they could do the bank reconciliation and enter the purchases side.
A bookkeeper can even save you money. You’re less likely to miss thresholds and get fined, and they can save you money at year-end as if the accountant ends up having to redo your accounts, it will be far more expensive than getting it done correctly in the first place.
Many accountants work with bookkeepers, so if you want to investigate this further, ask your accountant.