Often with small business accounting, it’s easy to stick your head in the sand, and ignore the paperwork until the last possible minute (and sometimes beyond it!). When you have new customers to win and new product lines to develop, there are far more profitable (and enjoyable) priorities than ploughing through a drawful of receipts.
Whether it’s because of time pressures, misreading the often complex tax rules – or a simple keyboard slip, we’ve seen even the savviest entrepreneurs make bookkeeping mistakes for their small business. With this in mind, here are some common errors we’ve come across – that you’ll hopefully avoid in future.
Income tax self assessment
Online submission of Self-Assessment Tax Returns is a massive timesaver. Yet despite all the email reminders HMRC sends out, failure to file the return on time is common. Almost 750,000 people were late with it last year, and a similar number left it until the day before the January 31st deadline.
Keep in mind that even though ‘required fields’ stop you from missing out key sections, the form itself is never foolproof. Anyone could insert the wrong digits under the self-employed income section, for instance. Likewise, with many sections for different categories of income, a slip of the mouse can cause you to tick ‘No’ to a tranche of income that actually applies to you (capital gains or share dividends, for example).
Top tip: Ensure you leave enough time in your calendar, filling out the form isn’t a rush, and you avoid mistakes as much as possible.
Linking small business accounting solutions and HMRC reminders to your VAT online account helps you track your filing and your payment obligations.
For VAT, most small businesses use either the Cash Accounting Scheme or Flat Rate Scheme. Instead of making assumptions, we always suggest seeking professional advice on which scheme is right for your business. Be aware that on the VAT return, the figure you need to insert in the Total value of sales box depends on the scheme you are using (the figure should be gross income for the Flat Rate Scheme and income net of VAT for the Cash Accounting Scheme).
If you classify someone as a contractor wrongly – and the HMRC disagrees and categorises them as an employee of your business, you will have to pay to HMRC the PAYE that should have been deducted from that employee at source: a potentially costly and unplanned-for blow!
Even with dedicated payroll software, ensure you check it’s always updated to reflect the changing circumstances of your workforce (e.g. linked to claims for statutory sick pay and statutory maternity pay). PAYE is an area that touches on both small business accounting and HR – and can get difficult to track as your business expands.
Ensuring your returns and payments are submitted on time is one thing, but company expenses can often prove especially problematic.
As a rule, if an expense is incurred “wholly and exclusively” for the purposes of the business, it is deemed an allowable expense – thereby reducing your company’s profits and the amount of Corporation Tax you have to pay.
There are exceptions, however. For instance, although the cost of promoting your business through advertising, marketing and PR is tax-deductible, the cost of entertaining customers is not. Rules on home/office expenses, transport and big equipment purchases (among many other areas) also demand careful attention – and diligent record-keeping.
Mixing business and personal transactions
As a sole proprietor, especially as a fledgling business, it’s tempting to blend your personal and business expenses into one. Setting up a dedicated business account may seem like a hassle – but it really is worth it when it comes to bookkeeping.
It makes it a lot easier to identify and calculate business-related incomings and outgoings for your tax return – so you won’t have to sift through lots of irrelevant personal transactions.
Failing to reconcile
Reconciliation is an important ongoing bookkeeping task. It means checking your business accounts along with your business bank statements, and ensuring that the two sets of records tally with each other. If there’s a difference between the two, you can then pick it up and deal with it at an early stage. As well as making life easier with tax returns, it has other benefits for your business, too; like identifying client bills that need to be chased, for instance.
Trying to do everything yourself
As your business grows, so too does your bookkeeping burden. EMMA’s experienced virtual assistants can take the pressure off you – freeing up your time for what’s really important: fewer spreadsheets, and more time for strategy. To discover a smarter way to meet your accounting needs at a realistic and flexible cost, speak to EMMA today.