By far the most effective and efficient way to reduce the amount of tax that you pay is by keeping good quality records of your financial transactions. That is keeping detailed accounts of what you earn and what you spend for your business from everyday transactions to substantial purchases.
These Accounts will form the basis for you Self Assessment Tax Return and the amount of Tax you pay. Therefore it is essential that you have an organized system in place to ensure that all invoices and receipts are not misplaced so they can be included in your End of Year Accounts
As this is only a rough guide, if you are in any doubt TMA Accountants suggests keeping the entire necessary paperwork safe in a folder with concise details of how it was paid and bring this folder along to your appointment with one of our accountants.
What to do
Bank Statements
First and foremost you should keep all your bank statements as these provide detailed accounts of both your income and expenditure. Most high street Banks will provide you with a folder for keeping your statements in chronological order upon opening an account with them as it is essential that all statements are keep safe and in order.If you lose any statement most banks will charge a small fee to give a replacement.
Cheque Books
Along with your statements it is essential that you keep your bank paying in book and cheque books as record of payments. It is imperative to write on the stubs of both your cheque book and pay in book exactly what it is you are paying in are writing a cheque for. It is suggested that for ease of use for both you and your accountant that generic terms are used when writing the descriptions on these stubs along with the payee’s name for any cheques.
For example if you were to purchase a new computer you would clearly write “computer” and the store from which you purchased the item from. You would not write a detailed description of the computers specifications as this might confuse your accountant and slow down their work.
Receipts and Payments
The next most important item would be to keep copies of all your receipts that you spend on your business and what you sell. This includes everything that was bought in the year, not just what you paid for. A set of accounts would generally have a list of items that were unpaid at the end of the year.
If for instance you have a telephone bill that has not been paid but relates to the period of your accounts that is an expense of your business in that financial year. It needs to be included in your accounts. If you are managing your money wisely you would make use of any free credit period that you can get or any time that you have to pay invoices.
On the items that you pay it is advised to also write the method that you pay be it cheque, credit or debit card or cash as this clarifies what method you are most using and depending upon in your business. If you pay by cheque, don't forget to write the cheque serial number on the invoice. This helps trace the payment through your bank account.
If you are sent statements by any company that you buy goods from it is imperative to keep these as they would give indications of the balance of your account at the year end and show any potential missing invoices. It is essential to check all invoices against delivery notices as this may indicate periods where more was paid for than actually delivered. Failure to do so may lead to unnecessary payment of undelivered goods.
Keep all your invoices in A4 or foolscap 'Lever Arch' folders, these can be purchased in most stationary stores, with the invoices 'punched' and filed in date order as this will keep all receipts and payments safely ordered and easily accessed by both you and your accountant for reference.
If you pay by credit card, it is also important that your keep credit card statments. Like bank statements keep tham in the folders that are provided by your bank or card provider. If this is a personal card, it is essential to state what purchases were personal and what were business on your statement as this ensures only items used for the business are included in your business accounts.
Credit Card Agreements
If you make any major purchases it is imperative that you keep details of any credit agreements or loan agreements, and make sure that they clearly state the interest that you are paying. This means keeping a note of not only the interest rate but the amount in pounds and pence, not just for yourself to see if you are getting a good deal but so that the correct amount of credit charges are applied to your accounts
How can TMA Accountants Help?
It is the quality of the records you keep that will keep both your tax liability and accountants fees to a minimum therefore if you are in any doubt about what records to keep please don’t hesitate to contact TMA Accountants and talk to one of our experienced accountants for more advice.
