Kick off the new tax year with 50% off our Ltd company accountancy packages!
We all have our own systems for keeping on top of our personal bookkeeping. Some of us are super organised, using filing systems and intuitive bookkeeping software like Crunch, whereas others simply hope for the best.
Like it or loathe it though, bookkeeping is essential. All businesses need to keep track of their income and expenses and if you don’t keep on top of your cash flow then sooner or later things will get tricky.
Our essential business guide to bookkeeping features top tips on how you can manage your bookkeeping, from understanding the basics to how technology can streamline and simplify the whole process.
If you don’t have time to read our tips in this article right now, you can download and keep our Bookkeeping Guide and come back to it in your own time.
Bookkeeping is the art of recording your financial information so that it’s easy to see what money is coming in and what you’re spending.
In order for your business to be successful, you need to be balancing the books every single month, otherwise, you might struggle with paying for things like stock, suppliers and even your taxes.
It’s a good habit you really want to be getting into from the very beginning of running your own business.
You won’t be able to run your business for very long without sound knowledge of your finances.
There’s a number of different taxes small businesses need to pay throughout the year, and bookkeeping means you can correctly calculate how much is due. This helps you prepare for the financial year ahead and allows you to think about what your next moves are, whether that’s growing your business or setting up a limited company.
Anyone who is self-employed or a limited company director needs to file a Self Assessment tax return every year. This is used to declare your earnings from employment and other income to HMRC and calculate how much you’ll need to pay in National Insurance and Income Tax. In order to do this effectively, and for things like filing your return early (which has many benefits), your bookkeeping must be organised.
Even if you have an accountant, they’ll still need you to keep on top of your bookkeeping such as getting your invoices out and recording your expenses, as they simply can’t do their job without knowing your income and outgoings.
Some accountants will need you to record everything using online accounting software (or Microsoft Excel if they’re old-fashioned), others will take care of your bookkeeping for you (at Crunch we can do both).
When your bookkeeping is in good shape, your accountant can help you with things like making tax-efficient decisions such as how much to pay yourself, what business structure is right for you and whether you should register for VAT.
It’s also worth remembering that if you dream of expanding your business, you’ll need to be able to prove its profitability to investors, new partners, and banks. Good bookkeeping practices can help you with this.
The government implemented the first stage of its ‘Making Tax Digital’ regime in April 2019. This means if your business is VAT registered, you must submit information about the VAT your business pays and collects to HMRC digitally using “MTD compatible” software such as Crunch.
As Making Tax Digital is extended further rolled out, you’ll need to arrange all your tax accounting online.
Put simply, bookkeeping is accurately recording and organising all the financial transactions for your business, whereas accounting covers the regular reporting of the financial position of your business. At Crunch, we have solutions for both simple bookkeeping software and complete accountancy software.
Financial reporting is a wide subject, driven by the size and complexity of a business. For most small businesses based in the UK, it means analysing, categorising, interpreting, and reporting on financial data over a specified period of time.
Bookkeeping is focused on recording the money coming in to and out of your business, usually made up of all your sales or invoices, and everything your business spends money on (your expenses). Accounting means organising that information, helping you make decisions about your business to help it grow or become more efficient.
It also means ensuring you meet your directors’ responsibilities to report your financial performance to shareholders, Companies House (if you run a limited company) and HMRC as required by law. You could see bookkeeping as the vital first step to ensuring your business meets its accounting responsibilities.
You can download our handy bookkeeping guide for even more information on how to manage your bookkeeping.
Start your bookkeeping early
A few minutes every day, or a designated time-slot each week represents good bookkeeping practice. Failure to sort it out in a timely fashion could result in you paying more tax than necessary, or even worse, being penalised for submitting a late or incorrect return.
Keep your work accounts separate from your personal ones
Open and maintain a business bank account and save yourself the bother of rummaging through all your receipts, trying to work out which of your purchases were ‘wholly and exclusively’ for business purposes. If you can, sign up for open banking and link your business banking to your accounting software. Crunch can do this for you.
Check out our full article on the benefits of opening a business bank account.
Use debit or credit card for transactions so they are recorded
This will make it much easier to keep track of the amount spent, where it was spent and when it was spent, making recording your expenses much easier.
Bear in mind that in some cases it might be sensible to use a personal card. For example, if you get the bus every day and pay for it personally, you can add up the total and then claim this as a business expense once per month, whereas paying with the company card means adding a separate record for every payment.
Update your records from anywhere with digital bookkeeping software
Even if you don’t use a complete accounting software and service package like Crunch, you should at least consider our Crunch Free bookkeeping software to save you time and money. You could also consider using a free cloud service like Google Sheets which will mean you can access your spreadsheets from anywhere. The built-in data processing can help you avoid those tricky maths problems.
We’ve got a couple of handy spreadsheets that could help you record your expenses and business mileage – which can make life easier, we’ve even got free invoice templates to make sending your invoices and recording your expenses as easier and more professional. Of course, spreadsheets can get lost or corrupted, or complicated if you’re not used to them, that’s where an online system comes in handy.
At Crunch, we’ve launched our very own Crunch Free bookkeeping software. It’s a super-easy way to start keeping proper records of all your invoices and expenses on a professional, secure platform.
When you need more support or help to file your accounts with HMRC and Companies House, you can upgrade to our complete online accounting software and service packages, such as Crunch Limited Company (or our Crunch Sole Trader package if you’re a sole trader).
Always keep your receipts
Make sure you retain evidence of all your expenses in case HMRC want to investigate your business.
There are rules around how long you have to keep records for – usually at least six years.
HMRC may ask to see receipts, and you’ll be in seriously hot water if you don’t have anything to provide, so make sure you’re keeping evidence of all your business expenses.
Printed receipts get lost or worn out easily, so it’s a good idea to scan and back them up. HMRC accept digital copies, so take a snap of the document and file it on your computer or online drive with the date clearly labelled. This will greatly improve productivity and speed for when you have to find the proverbial needle in the haystack. The Google Drive and Dropbox mobile apps do an admirable job of scanning and converting receipts and paperwork to PDFs.
Be sure to update your accounts whenever an invoice is paid. Avoid chaos by separating your invoices into four date-ordered sections when filing them: Sales Paid, Sales Unpaid, Purchase Paid, and Purchase Unpaid. This will help you avoid desperately shuffling through an unorganised pile later on.
If you’re a Crunch client recording your expenses on the move, the ‘Snap’ app automatically captures receipt data and records it in your account. Everyone gets 15 free scans per month, or you can upgrade to unlimited scans for £3.50 +VAT per month.
But again, if you’re not a Crunch client then apps like Expensify or even simply taking a picture of a receipt with your phone and uploading to free online storage systems like Google Drive or Dropbox will be better than a jumble of fading receipts in a shoe box!
Doing business overseas?
Top tip for if you need to record an invoice or expense in a foreign currency: foreign exchange rates fluctuate all the time, so make sure you record the amount that arrives in your bank account, and if you’ve been abroad, be sure to keep all your receipts from the trip.
Don’t leave it all to the last minute
It’s all too easy to delay basic administrative duties until the point when they really have to be done. Always remember the 5 P’s: “Proper preparation prevents poor performance”.
Like any task, bookkeeping is far less time-consuming and confusing if it’s done regularly. While it’s incredibly easy to prioritise more hands-on and – let’s face it – more interesting tasks, running your own business can be a short-lived venture if your accounts are a mess.
Of course, this advice doesn’t stop many hundreds of thousands of self-employed individuals from submitting their Self Assessment tax returns on deadline day every year, according to HMRC. Think of all the stress and lost custom these folks put themselves through, all the while kicking themselves for failing to start sooner.
How much time you deem sensible to get all your paperwork in shape is up to you. A quick few minutes every day, or a designated time-slot each week is good practice. Failure to sort it out in a timely fashion could result in you paying more tax than necessary, or even worse, being penalised for missing a deadline.
Make sure you’ve saved enough
Completing a last-minute tax return only to discover you don’t have enough cash to cover your bill is a classic error, and one that can be easily avoided by making sure you have the right amount of cash in a savings account at all times. Just divert a percentage of every invoice into a savings account when your clients pay and you’re ready to rock on tax payment day. We’ve written an article on how much to put aside when you’re a sole trader.
If you run your business as a limited company, it can get a little more complicated. Although it’s usually more tax-efficient, you’ll have different taxes you’ll need to pay, including Corporation Tax as well as making sure you pay your personal tax liability.
Our Crunch Limited Company complete accountancy packages will calculate the taxes your company is due to pay, and our expert accountants and superhero client managers will help you with all your company tax filings and deadlines. We can even take care of your Self Assessment as well.
Get an accountant or hire a bookkeeper
It makes sense to consider appointing an accountant the moment the toiling over your paperwork costs you business or takes up too much of your time. By putting an expert in charge, you’re freeing yourself up to run your business how you imagined it would be without all the complicated number crunching getting in the way. If you’re already a Crunch client and you need some extra help to bring everything up to date in your accounts, or simply want to free up some time, then our bookkeeping service could be ideal for you.
With the introduction of Making Tax Digital (which we mentioned a little earlier in this article), now is the perfect time to consider other ways technology and modern accounting and bookkeeping software can help improve the management of your business finances.
If you’re still on the fence, let’s take a look at some of the ways accountancy software can make your life easier.
The greatest selling point when it comes to online accountancy software is how easy it is to enter and access information about how your company is performing. Of course, your software won’t be able to do it all by itself – you’ll need to keep things up to date, but this usually only requires small, regular efforts from you.
As with anything, you’ll get out what you put in – for those dedicated to keeping everything updated, you’ll be rewarded with simple, clear, and accurate information regarding your business finances and tax obligations. Accountancy software is designed to make the process simpler, after all.
Speaking of which, accountancy software can help you better understand when you need to start thinking about registering for VAT – and help you decide what VAT scheme is best for your business.
Legally, you must register for VAT when your company’s VAT-taxable turnover exceeds the current threshold of £85,000 over a 12-month rolling period. Similarly, if you expect the threshold to be exceeded in the next 30 days, you need to register. Without a reliable way of tracking your turnover, you might end up on the wrong side of HMRC – and you definitely don’t want to end up there.
As mentioned, if you’re registered for VAT, you need to make sure that your accounting software is compatible with the requirements of the government’s Making Tax Digital regime (Crunch can do this). This means that your VAT records are stored digitally and are sent to HMRC automatically each quarter.
With your business information stored neatly and accurately online, you’ll be able to quickly work out exactly what your tax liabilities are and how much you need to set aside to pay HMRC.
This is an invaluable asset for a lot of small business owners – with a clear idea of how much you’ll be expected to pay in Corporation Tax and VAT for your business, you’ll be able to budget with absolute confidence. It’ll also make things a lot easier when the time comes to get the information you need about the salary and dividends your company paid you in the tax year to include in your annual Self Assessment.
Of course, the other great part of knowing how much you need to pay in taxes is knowing how much you can put in your pocket. Accountancy software can help you get a clear idea of what dividends you can take from your company without falling foul of HMRC’s rules.
It’s worth remembering that it’s illegal to pay a dividend if your company doesn’t have sufficient profit after tax to cover the dividend amount. Accountancy software helps eliminate that risk, so there’ll be no difficult conversations with HMRC.
Bank reconciliation is an important part of life as a small business owner. It’s a small, simple job that can have a big impact on your records and tax liabilities.
To reconcile your bank statements, you need to get all your bank transactions and match them against your recorded expenses and sales invoices. This can be frustrating work, especially since even a single missing penny can cause disarray. With online accounting software, the job becomes far, far simpler.
At Crunch, we have secure open banking links with most major banks, so you can have all your business banking transaction data imported straight to your accountancy software, which then intuitively suggests a match in the expenses you’ve recorded or highlights any discrepancies.
There’s no need to pore over paper records and drawers of receipts – you can just rattle through your bank reconciliation in a few mouse clicks, safe in the knowledge that everything is accounted for.
Our easy-to-use online accounting software and expert advice and support packages have been helping freelancers, contractors, and small business owners manage their business finances for over ten years now.
But perhaps you’re not quite ready for a full accountancy package – perhaps you’ve only just started out, or you’re happy filing the information you need to with Companies House and HMRC? Well, we’ve also now launched our simple free online bookkeeping software, Crunch Free!
Our Crunch Free software will help get you organised as you start to grow your business. Our software lets you easily send professional invoices and keep records of all your expenses in our easy to use cloud bookkeeping software, saving you time and making it easy to be more organised. Even better, it’s completely free!
Getting all the records in order might be insanely boring, but it’s also the easy part. An accountant will make sure you don’t end up breaking complex tax law and ending up with fines coming out of your ears. Sara Rizk, editor of advice site Startups.co.uk, warned: “If you don’t have the best skill to do it yourself then you should really get someone on board who does. You just need to be meticulous about the records that you keep – you can’t let anything slide”.
It’ll always be tempting to try and keep your operation down to as few heads as possible, so it’s understandable why so many self-employed people try to take care of everything by themselves. As most discover, though, keeping all the finances in check as your business grows is not just a real pain in the neck, it also gets in the way of your actual work.
It makes sense to consider appointing an accountant the moment the toiling over your paperwork costs you business. By putting an expert in charge, you’re freeing yourself up to run your business how you imagined it would be without all the complicated number-crunching getting in the way.
Crunch’s expert accountants are always on hand to provide support tailored to your small business, from answering questions on business expenses to proactive advice on getting the most out of your accounts.
As mentioned at the top of this article, our essential business guide to bookkeeping elaborates on these top tips.