During this month’s Facebook Live, I talked about how often a business should do their bookkeeping.
There is no hard and fast rule about how often a business needs to do its bookkeeping. However, there are legal deadlines every business will need to meet, and these deadlines dictate how often you should do your bookkeeping. There are also many other reasons to do your bookkeeping on a regular basis.
I am going to cover the legal obligations first.
VAT Registered Businesses
If your business is VAT registered, you will be legally required to file VAT returns with HMRC on a regular basis. The frequency you will need to do this will depend on what HMRC have instructed you to do, but for most businesses, this will be on a quarterly basis.
There are some businesses, especially those within agriculture, that will be required to file monthly returns.
To file your returns, you will need to collate all your financial information for the business. In this instance, especially if your business has a lot of transactions, getting your accounts up to date monthly, would be a very good idea. It will help you to ensure you are able to file your returns on time and ensure they are accurate. It will also help to give you an idea of how much money you owe to HMRC ahead of time so that you can plan for those payments.
If you are in the construction industry and must file CIS returns, you will need to do these monthly. Therefore, it is a very good idea to work on your accounts either on a weekly basis or a monthly basis, so that you can get your CIS return filed on time with HMRC.
If you are a simple sole trader who is not VAT registered, up to April 2024, you only have a legal obligation to submit your accounts to HMRC at the end of the tax year. Even though you do not need to submit your accounts until after the end of the tax year, it is not advisable to only do them once a year. I will cover the reasons why in just a little bit.
From April 2024, the legal requirements will be changing due to MTD ITSA (Making Tax Digital for Income Tax and Self-Assessment). All sole traders, and those with rental income, who have a gross income of over £10,000, will have to file their accounts with HMRC on a quarterly basis. At this point, it would be a very good idea to ensure you are keeping your accounts up to date monthly.
Currently, partnerships that are not VAT registered, only have to file their tax returns after the end of the financial year. The partnership return needs to be filed before the partners can file their self-assessments. Like sole traders, it isn’t advisable to only complete your accounts when the return is due. It is best practice to complete your accounts monthly.
From April 2025, general partnerships will be legally required to file their accounts through MTD ITSA on a quarterly basis. Any partnerships that have corporate partners or are a Limited Liability partnership will not be required to file through MTD ITSA at this point in time. Once this legal requirement comes into place, it makes it more beneficial to complete your accounts monthly.
All limited companies are legally required to file a corporation tax return after the end of the tax year, and their accounts to Companies House 9 months after the end of the tax year. It is not advisable to only prepare your accounts once a year but to complete them monthly.
There currently isn’t a set date for limited companies to file through MTD, but HMRC has said it will not come into force until at least 2026. Once further information is released, I will share it across my social media platforms.
Now that I have covered the legal requirements for submitting accounts, I am going to go through reasons why getting your accounts up to date on a monthly, and sometimes a weekly, basis is so important.
Completing your accounts on a regular monthly basis will be beneficial to your business for a number of reasons:
- You have a better idea of the financial position of your business
- You can make more informed business decisions about the business such as can I afford to hire new staff or did that marketing campaign work
- You will have a better idea of how much tax you owe
- You will reduce your stress as you won’t be scrambling to get everything together all at once at the end of the year
- You have a better chance of knowing what a transaction was for
- You will be less likely to lose any small receipts
- You will be able to spot fraudulent transactions sooner
- It helps with your cash flow as you will know who owes you money and who you owe money too
- It makes it easier to spot any mistakes
- If you need to provide financial reports to a bank or other finance companies to raise funding for the business, you will be able to prepare the reports faster
- You can measure the performance of the business more accurately
Some businesses, especially if they have a high volume of transactions, would benefit by doing their accounts on a weekly basis.
If you would like further information about keeping your accounts up to date monthly, feel free to e-mail me.