Probably one of the least enjoyed aspects of running your own business or retail store is record keeping. It is so important to keep accurate, up-to-date records for your sake as well as the tax service. So often we enjoy spending time with customers and the stock, rearranging the counters and redecorating, that we forget the other important aspect of running a business. It is not a job for a procrastinator nor someone who forgets to collect receipts. You may ask for the help of a certified bookkeeper or an accountant to get you started in the record keeping and from then on you could do it yourself.
Why Bother With Record Keeping?
It would be so nice if we had no one to answer to and had nothing to file but we all do. It is similar to a large family which has to keep files and bills and receipts for grocery shopping, utilities, clothing and mortgage payments to keep track of how their spending is done. A family or a single person has to file wage slips for income tax every year. So do businesses and stores. In order to do so with a minimum level of grief, proper record keeping is a necessity as soon as you begin your business.
Your system can be as simple as a journal entry book which has spaces for every credit and debit, day’s end, weekly trial balance and month’s end. If you can keep all the bills, receipts, payroll and benefits in a journal, it is all the better. Make sure you store the paper copies in a file for future reference. A former employee may enquire about past pay amounts or benefits. The tax office may make an enquiry about your tax records up to three years in the past. Therefore it is most important to keep any paperwork for up to six years or longer if you can.
Another Good Reason
If you don’t keep good records, but you have to make quarterly VAT payments, you are probably making a wild guess at the amounts. You would either be paying too much or too little. The VAT office might become suspicious and pay a visit to see how you are keeping your records. If the officer finds you are in a mess, not keeping a tidy system, he can penalise you, and return at a later date to see how you have tidied up the situation. His job is to see that you are filing the proper amount and that you are saving yourself time and money.
One of the best systems that can be recommended is the computer-based programmes. It does not take long to catch on to the Excel spreadsheet with all of its columns and adding functions. Each day make a practice of collecting and paying the invoices, entering them on the spreadsheet and saving the work. Keep a disc copy or paper copy every week just in case of a breakdown in the computer. Every month can have its own workbook and the whole year can be stored on one page to be opened up at the year’s end.
However, there are accounting programmes which you install onto your computer and they do everything for you. You simply enter the names of the customers or suppliers with their addresses and pertinent information. Every couple of days, you can enter the invoiced payments and income accrued, write the cheques, mail them off using a printed envelope and the week’s, month’s and year’s end is shown. Daily journals, invoice reminders and late customer payments are recorded for you. The computer must have a back up plan so make a copy every few days.
Accounting For VAT
Besides setting up records for income tax and payroll, you have to come up with a system for paying VAT to HMRC. They have come up with some very practical schemes depending on the type and size of your business.
The first one is called Annual accounting for VAT, which means you pay VAT throughout the year in nine monthly or three quarterly instalments. These instalments are based on what you paid during the previous year of your business and divided up. If you have not had the business opened the previous year, the office will predict what your payments should be based on an estimate of what they think the liability will be. If at the end of the first year, you paid too much, you will get a refund and if you paid too little, you owe them a balancing payment.
This is a great system if you only want to pay your VAT once a year also or claim a refund once a year. It helps with people and their cash flow worries, but remember to keep track of all of your paperwork. But if your business suffers a lower turnover, then it might not be to your advantage.
The next scheme is just as noteworthy for different reasons. The Flat Rate VAT scheme is good for small businesses and stores in order to reduce the time they spend having to account for VAT. Using the flat rate scheme, you don’t have to calculate anything. It is determined by your trade sector which is on a table on the HMRC website. Accordingly, you pay only the flat rate each year and your paperwork is done. However, you cannot claim VAT on your supplies purchases, which means that if you buy a lot of goods you could end up paying more on VAT. You have to make that decision about the type of business you run.
A third scheme is for retailers who sell a lot of low value goods such as a pharmacy or gift shops. The owner would find it very time consuming to issue invoices to VAT for every sale. So this scheme allows the merchant to add up all their sales and account for the VAT on the total each quarter or once a year. Certainly, the VAT office is conscientious in making payments as easy for you as possible. It is important to make VAT payments no matter what scheme you decide on and keep it up-to-date, in order to avoid investigations.