In the world of business, paying tax is as much a part of life as buying and selling. Companies are obligated to pay tax on everything their business makes, unless they can prove they are entitled to a deduction. So, if you don’t keep clear and organized records of your expenses, then you are likely to part with more money than is strictly necessary.
Regular bookkeeping is more than just a way of keeping track of your finances. Without it, there is always the chance that information will be missing when the tax deadline comes around. But hoarding financial documents isn’t enough by itself. You need to have a plan in place before you start. Once you’ve mastered the art of bookkeeping, you’ll never have to worry about absent records again.
Keep Your Personal and Professional Life Separate
Getting your personal assets mixed up with those of your business can be a nightmare. If you operate your company from the same account you use to buy groceries, then you are bound to lose track of which purchases were business expenses and which were from your home life.
In the event of an audit, you need to be able to differentiate between the two. If you have claimed a tax deduction on all your expenses and are found to have spent half of them on a new house, then you could receive a significant fine. Don’t run the risk and set up a separate checking account for your business transactions.
Keep Hold of All Your Receipts
Smaller expenses can often slip under the radar and go unregistered unless you keep a careful record of them. Although most audits will only focus on larger claims, each individual purchase adds up and can quickly drain your bank account unless kept in check. By keeping tabs on all your expenditure you can make sure you are in control of your cash flow at all times.
Related Article: How to Start the Bookkeeping Process
Filing all your receipts means there is no chance of anything being overlooked. If the tax office asks you to verify a particular purchase, you have the proof to hand. Receipts should be kept for at least 3 years, as the tax office can always investigate your claims retrospectively.
Learn to Manage Employee Records
If you’re a nascent business the chances are you’ll be hiring staff for the first time. Each new employee comes with a fresh pile of paperwork and it’s vital you understand how to deal with this.
For one, employees will need to be registered on your payroll. Every time a new member joins your team you will need to inform the tax office and begin collecting payment records. Any tax owed will need to be deducted from their salary and recorded. Next, you must report your payroll to the tax office at the end of each month, in order for them to receive this tax. Juggling all this by yourself can be daunting, which is why many business owners choose to delegate these tasks to an accountant.
Set Time Aside Each Week
With so many records to maintain and update, it’s worth penciling in half an hour each week to go through all your books systematically. By doing this, you reduce the need to hurriedly scramble together data at the end of the month. Start by noting down when each tax is due and build a schedule based around this. As long as you are meeting these deadlines you shouldn’t encounter any problems. You can always seek expert advice on any area you are struggling to manage.
Author: Chris Weston is the director of Aston Black Accountants in Milton Keynes, England. Chris has over 25 years’ experience in accounting and taxation, working with his small team of staff to provide quality advice for small businesses up and down the country.