Have you made any new tax year resolutions? 6 ideas to give you a head start.

April, the start of spring and also the new tax year.  Have you made any new tax year resolutions? If you are self employed it is your business year end and a great opportunity to think about how things went in the past year and how you plan to do things for the future. If you have a limited company, it may not be your year end, but resolutions can be made at any time of year.

Messy desk

Start by look backward over the last year. Have your book keeping processes served you well or has it all been a total pain? Are you confident about what you are doing or do you need some more help and advice? Will it be easy to produce your end of year return or a bit of a struggle? The chances are that your business has changed and hopefully it has grown; how has this made a difference?

Then think about the next year. Is there anything that needs to change? If the business has got bigger or more complex, there may be more accounting and more organisation required. Maybe the nature of your business has changed? Some methods that might have served you well in the past could do with a fresh look now. There may have been changes that are outside your control, such as the introduction of VAT MOSS for online digital service businesses. Is there anything you need advice on?

What resolutions are you going to make to help your business over the next year? To give you a start, here are six simple ideas that will get the basics firmly in place.

1. Keep your evidence

Vital for compliance and tax returns for both self employed and limited companies but also extremely useful for your own records. But what do you need to keep?

Income. You need evidence of your income, ideally through sales invoices. You can get a cheap and simple invoice book at a stationery shop, produce invoices on the computer or from an accounting package. If your business doesn’t require invoices then at least some kind of spreadsheet to record your income or till roll data if you have a retail business. It is important to have an accurate figure for how much you have earned. If you have a business bank account and only get paid by electronically then income is easier to prove. If you don’t have a separate business account or are paid cash then you need some other evidence of your business income.

Expenses. You need evidence of all the business spending, no matter how small. This might include materials, equipment, labour, wages, repairs, advertising, legal fees, bank charges, rent and rates, light and heat, stationery, telephone and broadband, insurance, postage, travel and subsistence. Don’t forget to include the items that come out via direct debit such as insurance. If you are calculating use of home as an office, you might also need to include some of your domestic bills.

Suppliers. If you use suppliers then it is good to save the supplier statements, especially at year end so that it is easy to see who you still owe and work out creditor balances.

This sounds a lot but it doesn’t have to end up as a huge pile of paper; HMRC will accept electronic copies. However, if you are doing things electronically you will need to be super organised with your filing or attach files to your cloud accounting system. You need to be able to find documents again and (from experience) an electronic folder with 100’s of randomly named pdf’s is not going to be particularly helpful.

Remember – your accounts are generally based on invoice date (accruals basis) rather than payment date so even if you haven’t paid a bill or received the money from a sale by the end of the year, you still need to include it.  However, sole traders can do their accounts on a cash basis under certain circumstances.

Mileage. If you are using mileage rather than motor then you need to keep track of your business mileage journeys. There are lots of apps that can help you with this or just use a simple spreadsheet or notebook.

2. Don’t mix personal and business

Have a separate account. If you are self employed, then you and your business are the same legal entity. However in the interests of efficiency, ease of bookkeeping and just your overall general sanity, it is very much easier to have a business bank account and to keep business and personal transactions separate. If you are a limited company then you are the business are separate legal entities and you have to have a separate business account.

Keep it for business only. Having a business account is not necessarily enough, you do need to be strict about keeping it for business only. If you need some money from the business then take it out as cash or do a transfer rather than doing lots of personal spending on the business card. There is nothing worse then trying to wade through a year’s worth of transactions with hundreds of PayPal purchases where you have no idea whether they were business or personal . I’m not bitter honestly, but your accountant won’t love you and if you are doing your own bookkeeping you won’t love yourself either. Be kind to your accountant and your future self and don’t mix personal and business.

3. Get a system

Everything gets easier if you have system. How you choose to work depends on how much you love technology and the nature of your business. What you do need is something that is more than a carrier bag in the corner with a load of receipts stuffed in.

I am a big fan of Cloud accounting systems such as Xero, Clearbooks, Freshbooks, Quickbooks etc. They have lovely mobile apps that you can use anywhere, you can upload bank statements or link your bank account, you can produce invoices, scan and attach bills or receipts. If you are the type of person who loves tech, apps and doing stuff on their phone, then this is definitely for you. However, most of them are very user friendly and even if you are not a computers person you might be pleasantly surprised.

But it doesn’t have to be a cloud solution, you could pick on desktop package (we also like VT Transaction), create a simple spreadsheet or set a physical folder system that works for you. The important thing is to get some sort of organisation, some tips include:

Separate income and expenditure. Keep income and expenditure separate even if it is just in different folders.

Use numbering. If you are using an accounting system, mark your paper invoices with the transaction number from the system, or if you are using a spreadsheet give them a number so they are easier to find.

Keep your papers in an order. Date order, transaction order by month, it doesn’t matter as long as you can quickly and easily find what you are looking for.

Don’t over-stuff. Keep your papers in a way that is easy to look through them. An overstuffed envelope or shoe box doesn’t help you find anything quickly and easily.

4. Be regular

How do you eat an elephant? One bite at a time.

Bookkeeping can be a huge elephant if you leave it all until your year end. Taking little bites and inputting information more frequently makes it a much easier task. The papers you need will still be to hand, you’ll still remember what they were for and it won’t take so long.

But this is not just about making life easier for year end or VAT, it is also about becoming closer to your business. It is easier to keep on top of cash flow, make sure your supplier payments are on time or chase down late customers. You can plan and save for the tax that you’ll need to pay. You know whether the business is profitable and can use the information to make more informed decisions.

5. Make it a habit

Resolutions are easily broken, but what helps you to be successful is when you make them a habit. Habits work because you do them without thinking, there is no decision making, will-power or mental energy involved. If you want to create a bookkeeping habit there are a number of factors that will help you to succeed.

Make it as easy as possible. The first steps should be super simple so that they really don’t take any energy or willpower, e.g. put your expense receipts in a monthly folder rather than a carrier bag. You can always build in more complexity later once the simple habit is established.

Try to capitalise on your existing behaviour. This is about looking at the routines and behaviours you already have. If you spend all day on your computer then using a spreadsheet or cloud package would be a good fit. If you are out and about all day then something that works from your phone might be better. If you hate technology then you might prefer a more traditional manual system. You have to think about how you like to work, the most efficient solution is not going to be efficient if you never use it. Create a solution that you will happily use that fits your routines and lifestyle.

Have a trigger. This is about linking the habit to an existing routine. If you like to have a coffee first thing in the morning when you start work you could use that as a trigger. When you have your coffee, you spend 5 minutes on your accounts. Maybe you have a particular programme you watch in the evening. When the programme comes on you can sort out expenses while you are watching it?

6. Stash for tax

Remember that not all the money you earn belongs to you. VAT, PAYE, income tax and national insurance all comes out of your income for HMRC. Another good reason for staying on top of things is so that there are no nasty tax surprises to kill your cash flow.

It is a really good idea to have a business savings account as well as your business current account. When you are employed and PAYE deductions happen automatically, you don’t miss the money so much as you never really had it. You can operate the same principle to save for income tax, VAT, corporation tax etc. Put some tax money into your savings account as soon as you are paid, as if it was never your money at all.

Don’t forget when a sole trader has more than £1,000 tax due (figure for 2015) you have to start making payments on account. This means that in January as well as owing the tax for the previous year tax year, you also have to pay half of the estimated tax for the next year as well, then the other half in July. If your tax is £2,000, this means £3,000 in January and £1,000 in July, which is a big hit if you have not saved for it. If you have been putting the tax money aside each month then the £2,000 will have already been saved and you should also have more than enough to cover the £1,000 payment in advance too.

If you are not keeping track of your figures regularly, it is difficult to know how much money you are making and how much you need to save. If you are using a cloud package they sometimes make this easier by providing estimates for tax e.g. VAT, corporation tax. If you are self employed it is a bit more complicated and is worth a chat with your accountant to help work out what to put aside.


Keep evidence of your income and expenses

Don’t mix business and personal spending, keep them seperate

Get organised and get a system in place

Be regular in keeping your books up to date

Make your system a habit

Put money aside for tax when you earn it


 Image credit – The messy desk syndrome by Steve Baker