During the June 2021 Facebook live, I answered some of the common questions about bookkeeping and accounts that I get asked quite a lot so I wanted to add the information into a blog post for you.
Do I need a separate business bank account?
There is no actual rule that says you need a separate business bank account; however, it is good practice that you do have a separate account as that way you can ensure you know exactly what funds the business has and it makes it easier to prepare your accounts.
How long should I keep my records for?
If you are a sole trader or a partnership, you are required to keep your financial records for 5 years.
If you are a limited company, you are required to keep your financial records for 6 years.
The date you need to keep your receipts from is not the date your financial year ends, but it is actually January 31st after the tax year ends. This takes into consideration that the end of year tax return must be filed by January 31st of the next year. For example, for the 2020/2021 tax year, your tax return doesn’t need to be filed until 31/01/2022. In that instance, you would then be required to keep your financial records for 5 or 6 years from 31/01/2022.
If HMRC do an inspection on your business, they can ask for financial records dating back to the previous 2 decades, so you may want to store the information for a longer period of time.
How should I be producing invoices for my business?
You don’t always need to issue an invoice to a customer, it could be that you issue a sales receipt instead.
The easiest way to produce your invoices is through accounts software – like QuickBooks Online – if you are using software. If you are using a CRM system or time tracking software you could potentially create your invoices on that software.
If you aren’t using any accounts software, you could just create an invoice using Word and send that to your customers.
If you are an e-commerce shop, depending on the website software you are using for your shop, it may automatically produce the invoices for your customers, which means you wouldn’t need to re-create the invoices as you would already have them. You would just need to find a way to import the sales information from your e-commerce shop into your account’s software.
Is there software I can use to link my paid invoices straight to my tax return figures?
The easiest way to ensure your invoices are linked to your tax return is by using accounts software, like QBO, to issue your invoices.
If you are using an external system to manage projects or invoice customers – like Zoho or WooCommerce for example – you can use 3rd party apps to automatically link the software to your accounts software and your sales information can be pulled through, so you don’t need to duplicate the work you have done with creating invoices.
Do I need to use accounts software to produce my accounts?
By April 2023, all VAT registered businesses, sole traders and landlords that meet the requirements must submit their figures quarterly to HMRC as per the rules of Making Tax Digital. Using MTD compliant accounts software to record all of your incomings and outgoings will make it so much easier for you to do this.
Not only will it help you meet the requirements of MTD but using accounts software can help you to improve your cashflow, have an accurate and up to date picture of your business, and help you to be able to grow the business and achieve your goals.
If I use QBO, do I need a bookkeeper?
The software companies have been quite clever in their marketing and have made it look like using the software is as easy as clicking a couple of buttons, and in some ways that is true. However, you do need to have an understanding of where the various numbers should appear in your accounts so that you can make sure you are entering the information correctly.
I have had clients come to me who have been doing their own bookkeeping but now they want some help and I have found several big mistakes in how items were recorded that if I hadn’t picked up – would have resulted in the client having a very large tax bill due to overstating their income.
You may not necessarily need a bookkeeper, though I do advise all businesses to have one to ensure they are entering all their information correctly and meeting all of their legal obligations. It may be that you do the bookkeeping yourself but have a bookkeeper on hand to ensure the information is entered correctly and to help provide you with support.
If you do want to do the bookkeeping on your own, I would advise that you get training on how to use the software. I have a number of PDF help sheets on my website, can provide 1:1 training on QBO and I also have an online 5-day self-study course that will teach you the basics of using QBO. It will help you to understand how to create nominal codes, create products and services, how to create customers, issue invoices and how to receive payments, ensure you are dealing with suppliers correctly, how to correctly use the bank feed to help reduce duplicate transactions and show you how to access some of the basic reports. The course doesn’t teach you how to do the bookkeeping but will help to ensure you are using the software correctly.
What does reconciling accounts mean and why is it important?
Reconciling your accounts is the process of comparing two sets of data to ensure the figures agree and are correct. For example, your bank account – you would compare the information on your actual bank statement with the information you entered into your accounts software to make sure all transactions are included, and that the information is correct. It is extremely important that you do this even if you are using a bank feed in accounts software like QBO or Xero because sometimes transactions do get missed.
Going through and reconciling your accounts each month also helps to confirm the accounts are accurate and complete. Checking that all customer invoices and payments have been entered correctly and to the correct customer account can help you to see if any customers owe money and help improve your cash flow. It can also help you to spot amounts posted to the wrong account – for example, if you accidentally recorded a transfer of money to a savings account as income.
By reconciling your accounts, you are ensuring that the information is accurate. This will help to give you a clear picture of the financial situation of your business and allow you to make those important business decisions so you can grow your business and achieve your goals.
If you have any questions about hbookkeeping or keeping your accounts, feel free to e-mail me and I will get back to you! I am going to try and do this type of FB live and blog post a couple of times throughout the year, and I am thinking about doing a specific Q&A webinar, so please keep your eyes open for any future Q&A sessions so you can get your questions to me!