If someone said to you pay me £200 for this thing that is at least 8 months out of date would you buy it?
No? Why do you do it with your tax return?
If you save all your receipts in a bag and hand them to your Accountant at the end of January that is what you are doing. You are giving them things from the previous tax year that ended in April the previous year, 8 months later.
Yes you meet your statutory requirements but it just shows what happened and cannot be affected.
For the same amount or maybe slightly more if you do your book keeping as you go along you can have live data that you can influence as the year goes on.
Recording Your Data
Choose how you want to record information.
If you do very few transactions you may get away with using a paper leger or a spreadsheet.
If you do quite a bit of business then there are various free options online such as Wave where you can send invoices and log outgoings on the same system.
Once you are fully up and running then it is best to move over to an accounting package such as Quickbooks or Xero.
Also there is an argument to go straight for an online system as the HMRC are in the process of rolling out the Making Tax Digital concept, at present it is only for people above the £85,000 VAT threshold and to log VAT returns but in time the HMRC is wanting all business tax, VAT and Self Assessments to be done online.
Some of the free online providers have said their products will not be MTD Approved and currently you can set up bridging software for Excel but it will probably be phased out.
A lot of the paid for software come with add ons and apps where you can scan receipts etc and other things to help you keep on top.
Whatever system you use make sure you ‘USE IT’.
Lots of people just hand over a bag of receipts and invoices to their accountant on the 31st Jan each year. Through your Accountant’s work this covers you for your statutory obligations but you are kind of paying them to do a lot of work that is needed but useless to get to a figure that they can put on your tax return for you.
Because if you give your receipts etc to your accountant in January they are at least 9 months out of date so there is not much you can do with the information apart from see that you have made a loss or a profit and what your tax bill will be.
For the same price (or maybe a little bit more) if you drip feed your receipts and invoices to your Bookkeeper or Accountant or log them yourself say monthly you can see there and then how much you are spending, where you are on course to make a profit and with the information you can make ‘real time’ decisions and work out your return on investment is.
Return On Investment
Return on investment is how much income you make from spending money on a certain activity. For example if you spend £10 on an advert and get work of £100 from it your return on investment will x 10.
Obviously some things you will not expect to make a return on such as rent or phone bills but there are other things such as networking where you spend £20 a time and have nice food and a laugh with people. If you don’t monitor it you could by the end of the year spent hundreds of pounds and the only thing you got out of it was a plate of chips each time and you could have save yourself a lot of time and money by just going to the pound shop and buying a bag of chips.
You can do the same with heating bills, broadband deals, stationery, printing costs etc – are you getting a good deal? If not you can switch to another provider.