For your UK Tax: Keep business and personal expenses separately
There are several strategies that you may use to enhance record-keeping. For example, you should keep your business and private expenses separately and/or use separate bank accounts where possible.
Furthermore, asking for invoices is a common practice that is important for record-keeping and transparency as it enables faster filing of VAT returns and can serve as proof to companies that are suspected of VAT fraud. Furthermore, this can be added to an electronic filing system to ensure that you have access to all your files.
For example, it is important to keep your business and private expenses separately and/or use separate bank accounts. Additional due diligence, such as asking for VAT from your suppliers and double-checking amounts, is useful for businesses and sole traders to ensure accountability and governance on the part of such businesses.
This will prevent you from overpaying taxes or underpaying and risking a fine.
Separate business and personal expenses
Always separate personal purchases from business purchases. If you buy something from a supplier, they should issue an invoice and use these for tax and VAT purposes. This will avoid misreporting and ensuing fines from HMRC.
Remember that any shortfalls in filing your taxes will result in huge fines. This could ultimately impact the functioning of the firm in question and cause a significant short-term loss in profits. Rather than bill customers, you should bill them from the company as this will be accurately reflected in VAT claims or other tax allowances that may result.
Always Ask for VAT invoices from your suppliers
To reclaim VAT, always ask for invoices from your suppliers and ensure they are VAT registered. In line with best practices, you should submit your invoices at the appropriate time to prevent errors in the filing of VAT returns.
A supplier invoice is important as it breaks down the transaction into components that can be easily verifiable during tax payments. It equally ensures that both sides are aware of the cost that went into producing a particular product or service.
Double-check invoices for accuracy
Double-check all invoices to ensure that they are accurate and have all the relevant information. Ensure that all the correct amounts are put in the invoice to avoid any complications that may arise.
Ensure you have a verifiable and transparent record-keeping system
Organise your invoices to easily track them
Always create a separate purchase invoice folder that contains different folders created based on months and years. By separating invoices into separate folders, you will avoid errors and create a transparent and easily discernible filing system.
Ensuring that the folder is designed to properly report all invoices and purchases over the year will ensure that you accurately report your expenses and invoices to customers.
Bill clients upon completion to avoid mistakes
Each time you receive an invoice, be sure to save it right away. By using an automated invoicing system and scheduling your invoices, you will lessen errors and improve transparency across the board.
Such an approach will ensure that your bookkeeper or accountant correctly identifies invoices and checks all the backlogs of events that need clarifications.
Record-keeping versus bookkeeping
Record-keeping is different from bookkeeping. By using a bookkeeper, you will ensure all your ledgers and journals are correctly done. Your responsibility is to ensure that all business transactions are in one place.
As pointed out earlier, it is important to ensure that your files are organised and easily traceable by the accountant and/or bookkeeper.
Share all information with your bookkeeper
Be sure to share all relevant information with your bookkeeper to ensure they prepare your books accurately. This is important for accountants as it is easier for them to prepare yearly accounts and claim back VAT.
Always remember that any bookkeeping records will be reflected in your VAT tax returns. An incomplete declaration will get you into problems with HMRC and the fines could range from 20 to 70% of the owed tax.
Frequently Asked Questions
How long should I keep tax records and bank statements?
To properly report and handle your VAT, keep a record of your tax record as well as bank records for a minimum of three years. You may equally use electronic filing to record information properly.
How to keep paperwork in order
Establish a clear and logical filing system for hard and soft copies to easily retrieve your tax and other VAT information such as invoices. You may equally use a digital and cloud storage system and save each file by month, quarter and year. This will ensure that you always know where to find a particular invoice for a client.
What invoices should I retain?
In line with the U.K. tax system, you should retain all invoices related to your business transactions and expenses.
