How to have a hassle-free tax return
Every year, as the Tax Return deadline approaches, business owners and individuals up and down the country can be found frantically stuffing a whole year’s worth of receipts and invoices into boxes ready to thrust at their accountant with an apologetic smile and promises of being better organised next year!
As an Accountant with over 20 years’ experience, I’ve seen it all. From scraps of paper with random figures written on them to receipts that a young child has used to draw a masterpiece on. And I really do understand that when you’re running a business, you are often so busy doing that there’s precious little time for fun, let alone organising your financial records!
When I was a teenager, my Mother used to tell me that if I tidied my room as I went along, putting each thing away after I’d finished with it, then I’d always be able to find it and I wouldn’t face the huge task of trying to sort through a mountain of clutter in order to get my pocket money. Reluctantly, I have to admit that she was right! It’s good advice for financial record keeping too. I know that life is busy but if you organise your records as you go then the end of year stress is largely alleviated.
Here are my top tips and advice for organising your financial records.
Let’s start by looking at what sort of records you need to keep in order for your accountant to submit your tax return.
For ALL of your business accounts and for the WHOLE period. Your Accountant will need to track any movement between accounts during the year, even if it’s just a few pence in interest. Cheque books and paying in books are without doubt on the wane but if you are still using them they will need to be included too. Loan statements are also important (even if you have to approach the bank to get a statement) as the interest incurred is a tax deductible expense.
If you have a business credit card, your Accountant will need these statements too. If it's a personal card that you occasionally pay for business expenses on you’ll need to spend a bit of time highlighting the relevant items.
If you've got a new hire purchase, you must let your Accountant know. The interest on the repayments is a tax deductible expense and the asset could fall under the annual investment allowance. Failure to disclose a new piece of equipment could add hundreds of pounds to your tax bill. Find that agreement!
Unless your Accountant runs your payroll, you will need to supply all your payroll records for the year. You'll need a print out of each month's pay run so they can reconcile the net payments made to employees. Make sure your reports show employers national insurance; so payslips are not enough.
All of your sales invoices for the year (regardless of whether they have been paid or not) need to be submitted. If you run an online shop then your accountant will need your total sales before any fees were deducted.
If your accountant doesn't have these then they may need to make assumptions and/or some expenses could be missed out altogether, increasing your tax bill.
Your accountant will need to reconcile your cash so they will need all of the receipts along with a note saying what the petty cash balance is at the end of the year.
If you trade through a Limited Company, then keep a log of any business mileage that you do. Keep in mind that business mileage is not driving to work every day; instead it's travelling to courses and your accountants, those kind of things.
If you have any employment income (aside from your Limited Company), you need to provide your P60, or P45 if that employment income ceased during the year.
If you had a P11d then also include that as otherwise your tax calculation will be wrong and you could end up getting a tax refund and then into a whole host of problems with HMRC!
If you’ve made any payments into a private pension scheme you need to pass this information on to your Accountant. It’s tax deductible!
This is one item on your tax return which HMRC already know, so don't "forget" your savings account. HMRC will know and they won’t be happy.
You need to declare details of any dividends you received during the year no matter how small.
If you receive any income through renting a property your accountant will need to see your property management expenses and your mortgage interest. If you have a repayment mortgage then the repayment element is not tax deductible so cannot go on your Tax Return.
If you’ve received any other income during the year, such as another self-employment or selling a rental property or some shares.
Your Tax Return needs to show ALL of your income so it's better to run something past your accountant if you're unsure rather than making the decision not to declare it yourself.
So now you know what to keep, let’s have a quick look at some ways to organise your records in order to avoid any last minute panic searches!
Luckily, HMRC no longer requires businesses to store hard copies of accounting records for 6 years, which is good news for garage and loft space! This means that you can store your accounting records digitally using something like GoogleDrive or Dropbox.
The beauty of this is that you can create an online folder structure where you save things like monthly bank statements and invoices on an ongoing basis. This avoids piles of paperwork and is much easier to do as you go along.
For things where you only have a hard copy, such as cash receipts, either scan them or take a quick photo on your phone and then save it to the online drive. It’s quick and easy and you don’t have to scrabble around looking for it in January!
If you don’t already have a business bank account, then consider opening one up (along with a deposit account so you can set aside your tax money on a regular basis). Whilst there is no legal requirement to open a business bank account when you are self-employed, it is recommended by HMRC.
Your business bank account will capture all your business income and expenses, making your bookkeeping so much easier to deal with. If you request a debit card to go with your business bank account, you can pay for your day to day expenses directly from your account avoiding the need to claim cash expenses although you will need to provide receipts (scanned or photographed) for all expenses.
If you don’t have a business bank account then you could use a personal credit card for all your business spending. That way all of your spending is in one place, making it easy to pull together your information at tax time. Again, don’t forget to keep all your receipts and scan them in, along with the credit card statements, into your cloud storage each time you receive a statement.
Block out a couple of hours each month to make sure all of your records are up to date and organised. It won’t be the most exciting two hours of your life but you’ll thank yourself come the end of the financial year! You could even promise yourself a small reward for doing it each month – I like to put a KitKat on the shelf in my office and I can enjoy it with a cup of tea only when I’ve finished organising my records for that month!
At Apple Tree we recognise that managing your tax & accounts often drags you away from those things that matter most to you such as running your business, spending time with your family or enjoying your retirement. That’s why our ethos is to deliver a comprehensive, reliable and friendly tax, accountancy & probate service that gives you peace of mind and time to focus on the things you’d rather be doing.
Telephone: 01235 869142