Running a Business – Why do I need to keep good financial records?

There are many reasons that keeping your accounts organised is beneficial, the main one being that you will be compliant.

HMRC can impose penalties on businesses whose accounts are not in good order and up to date. This penalty is generally in the region of between £250 and £500. However, in extreme cases, for instance if records were deliberately destroyed, the penalty could be up to £3000.
There are a variety of timescales that these records need to be kept for. They include business financial accounts which need to be kept for a minimum of six years. P.A.Y.E. records, including C.I.S. returns, which need to be kept for a minimum of 3 years. Also personal (self assessment) tax returns need to be kept for at least five years, starting after the deadline of 31 January of the applicable tax year.

Another reason for keeping business accounts in good order is to assist with the day to day running of your business. Having your accounts recorded and filed will enable you to locate an invoice for payment, or maybe dispute, with ease.

You will also be able to create an income and expenditure report for your business and this will also help you to budget and create a cash flow forecast. If the forecast is not as optimistic as you imagined it gives you the opportunity do something about changing the forecast, whether it be short term lending or creating more sales.

If you do need to approach the bank, or other financial institution, for any type of lending having a cash flow forecast shows you are in control of your business and the potential future.

Running your own business means you have to be responsible for a lot of different areas, not just what you are passionate about, which in the main is the reason you started your business.

However, although you are responsible it does not mean you have to deal with the business accounts. Hiring a bookkeeper is a way to take away the stress of the financial records and it may not be as expense as you think.

VAT – Do I need to register my business?

One of the most commonly confusing and daunting topics among business owners is VAT registration. In our many years of practice as bookkeepers, we have dealt with a large clientele and the question that very often arises is whether registering for VAT is the right decision for their company.

Even though for some companies VAT registration is compulsory by the law, for others it’s a voluntary decision, which means that in reality it’s a matter of good timing and getting smart legal and tax advice for your company. Having that said, in order to come to the right conclusion it is important not only to know your company’s needs and profits, but it is also crucial to understand the impact of this decisionon your business.

If your business’ VAT taxable annual turnover is more than £85,000, then you must register for VAT with HM Revenue and Customs (HMRC). And once you are registered, they will send you a VAT registration certificate, which will confirm your VAT number, the dates when you will have to submit your first VAT return and payment, along with your ‘effective date of registration’, which is the date you went over the threshold, or the date you asked to register if it was voluntary.

This is a very straightforward procedure for your company if it meets the VAT registration threshold of the £85.000, but the challenge begins if you are a small business owner or a start-up company and you are trying to figure it out what is the best course of action for you.

Every company is different and every company owner needs to be advised accordingly. It’s a bookkeeper’s duty to be able to advise his clients for the best of their interest. Registering for VAT should be considered very thoroughly as it can have permanent implications for the financial health of your company.

One of the main reasons why you should consider registering for VAT voluntarily is reclaiming VAT that you have been charged by other companies. As a VAT registered company you are legit to claim back VAT charges, as long as your input tax doesn’t exceed your output tax. Moreover, being a VAT registered firm can be beneficial for improving your business profile. Potential collaborators and clients will consider you as a large and well established company.

In spite of the benefits, one should also consider the downsides of being a VAT registered business owner, especially for small companies or start-ups. You might end up with higher costs and there will be an increase of paperwork. Your company needs to follow specific procedures and be on time on your payments, as penalties do apply.

There is no doubt that registering your company is a substantial change for your business. And there are plenty of questions that we are more than happy to answer and help you with. As a bookkeeping company we are here to advise you which are the best solutions for your own business and assist you throughout the whole process, while ensuring that a VAT registration is the right financial decision for you.