In the short-term, doing your own bookkeeping may prevent you from parting with your hard-earned cash but, if you get it wrong, you could end up paying more in the long-run. Better to leave it to the pros while you get on with managing your business.
There’s more to bookkeeping than meets the eye. (After all, there’s a reason why there’s an entire profession dedicated to it.) Get it right and the taxman will be silent. Get it wrong and he’ll be ringing in your ears until you get it right.
What does bookkeeping involve?
Bookkeeping involves taking detailed notes of all the financial activities carried out by your business.
The reasons for doing this are two-pronged – firstly, to get your records ready for review by your accountant and, secondly, to ensure that your business finances are in HMRC ‘inspection-ready’ condition.
What are the pitfalls of DIY bookkeeping?
Many sole traders, contractors and small business owners believe that being the boss of their own bookkeeping can save themselves wads of cash and, ultimately, increase their take-home pay.
With this in mind, they do their own books and complete their tax returns completely unaided then, at the end of the year, hire an accountant simply to sign-off and file their accounts. If there are any complex or technical issues that fall outside the scope of their knowledge, their accountant will step in to save the day.
Whilst this approach may feel right, it doesn’t mean it isn’t without risk. After all, pretty much everyone knows how to make a record of a bunch of transactions. But not everyone knows how to pay themselves the right amount of salary and dividends in order to reduce their tax burden.
That’s why there are scores of small business owners out there who mistakenly believe that, because they’re religiously paying VAT on a quarterly basis, they’re playing by HMRC’s rules. Then they find themselves the unfortunate recipients of a letter to the contrary from HMRC! More often than not, VAT payments are made every quarter, but the right amounts of VAT aren’t.
Driven to the depths of despair by the wrath of HMRC, small business owners then make a last-ditch effort to remedy the situation by calling upon accountants for help – only to be billed hundreds of pounds to be dug out of the hole they dug themselves. To add salt to the wounds, they tend to get slapped with penalties from HMRC (often for hundreds of pounds) for failing to pay the right amount of VAT on time.
Ultimately, these same small business owners end up paying an accountant roughly what they would have done from the start. So, not only do they waste their time doing their own bookkeeping, they also waste their money, too.
How can we help with your bookkeeping?
As a freelancer, consultant, start-up or small business owner, your time is always best spent doing what you do best – whether that’s photography, web design, copywriting or something else.
At AudTax Accountax, our team of accountants and tax consultants are responsible for staying abreast of the latest developments affecting businesses. If you would like to find out more about how we can help with your bookkeeping, contact us today.