The importance of keeping your bookwork up to date
17/09/2019 - Avanti Group
Avanti MD, Victoria Sharp, shares her proactive bookkeeping advice.
I know it’s the last thing you want to do – you want to be out there running your business, doing what you do best. But keeping your bookwork up to date is so very important – after all Cash is still King! And if you don’t keep a check on your bookwork, this could become an issue.
We have had so many case study examples its hard to pick one!
- We have had clients that don’t do any bookwork and panic on the 30th January that the work has to be completed for their Tax Return
- We have had clients that don’t do bookwork – go over the VAT threshold and we end up doing 4 years of bookkeeping to find out the VAT position – a very costly exercise!
- We have had clients that forget how to use the software because they don’t use it regularly – and have to keep paying to have training to refresh themselves
- We have had clients that get in to cashflow challenges because they have not chased their customers, not knowing who owes what
- And many many more reasons.
So taking VAT, as it is one that trips up many clients:-
You have to register for VAT if your turnover in the last ‘rolling’ 12 months (not your financial year or the tax year, but a rolling 12 month basis) goes near the VAT threshold (2019 £85K).
In a recent case the client was doing their bookwork, but only once a year for their accounts / tax work. They entered all the data on Xero software that we are Gold Certified Partners for and sent us the link to have full access.
Firstly, this did not give them any information during the year about their business as it was inputted so late, and in one go. So their VAT / profitability / potential tax position was a mystery to them! When we obtained the data – we saw immediately that there was a VAT issue. This was just on the 12 months of the financial year. We had to ask the client to go back many more months and give us their turnover each month so we could work out at which point they did reach the threshold and pass it. Once calculated, it worked out that they were 18 months beyond the point they should have registered.
The first job is to ensure the bookwork is entered correctly – we did a check on the file to ensure everything that could be claimed was, and anything not allowed was marked accordingly. We registered them for VAT and submitted their first VAT return. During the process we provided the client with advice on what could happen next – which is likely to be a VAT inspection (so it was important to do this prep work first and make sure the bookkeeping / vat entries were correct). The VAT is now completed on time, and payments made on time. We await a VAT inspection (could be any time in the next 4 years!). But we know when this happens we will have good data to provide.
In fact, “poor accounting” is one of the top reasons businesses fail. Without bookkeeping or accounting, you are blindly driving your business.
With a bookkeeping process in place, you can have financial information ready for tax time so there is no last minute panic and plenty of time to save up for any tax that may be owed. And if you have been recording your bookwork promptly and correctly, probably saving tax – those last minute rush jobs may mean you miss a vital receipt and pay more tax than you should.
Analysis = Better Decision Making / Planning & Budgeting
Bookkeeping gives you information to show what is working and what is not. What is profitable. What is costing too much. Allowing you to focus on your company’s strengths and improve on its weaknesses.
How can you expect to make profitable decisions without financial information to back it up? So bookkeeping presents the past financial performance of your company. In order to plan for the future, you have to have a good understanding of the past.
With a budget, you can plan for future expenses and the anticipated resources that would cover those expenses.
Better Cash Flow
Bookkeeping improves your cash flow. The routine recording of income and expenses allows you to track who owes you, and who you owe.
Making Tax Digital
Of course, with Making Tax Digital already in place for many VAT registered businesses, you now have to submit figures, quarterly to HMRC through an approved software, but this is going to be a requirement (as far as we have been advised!) for every business, whether vat registered or not in the future. So that once a year panic to get your books up to date for your tax return – will be a quarterly panic!
Quick Top Tips:-
- Do it every day! – The quicker it takes the easier it is….honestly
- Keep it simple
- Use software to help
So how can Avanti help:-
- Bookwork Training
- Bookwork and VAT checking facility – giving you peace of mind before submitting to HMRC
- Or just don’t worry and let us do it all for you with our full bookkeeping service
To find our more, visit the Avanti website.
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