Bookkeeping isn’t exactly known for its glamour. Indeed, many accountants see it as low value work; some even see it as being beneath them – but the number of business owners that get this wrong, having not been given proper training, never ceases to amaze me. Bookkeeping is the first thing that needs to be done right, it serves as the bedrock for all the financial management information in your business; and the consequences of getting it wrong (in the event of a HMRC enquiry) can be severe.
It is our view that if business owners seek to make data-driven decisions about their business, they always need to have key financial information about their business at their disposal. This means that bookkeeping must be kept up to date rather than being rushed when an accounts or VAT deadline is approaching. Not only does this facilitate more accurate and up to date financial data, but in keeping their bookkeeping up to date always, business owners minimise the risk of losing or otherwise destroying their paperwork which may be required by HMRC later.
Paper records no longer need to be retained by business owners for HMRC, a digital version is sufficient for any compliance check that they may wish to make. Therefore, there is no need to retain paperwork in shoeboxes, carrier bags or whatever other ‘system’ business owners have traditionally maintained for HMRC; it is our opinion is that a digital version is superior anyway, as it is less likely to get lost, damaged or destroyed once it is in the cloud. Of course, software providers are all too aware of this, and there is are several products on the market which seek to simplify bookkeeping (which I’ll come on to later).
What is bookkeeping?
Bookkeeping is the process of recording financial transactions about your business into its accounting systems – these systems range from a carrier bag of receipts part covered in cement (I shudder at the thought) through to more sophisticated technology-led solutions (no prizes for guessing which we encourage our clients to use).
As simple as this sounds, there are various nuances to this (especially if your business is VAT registered) and pitfalls to avoid.
Common bookkeeping mistakes
These are not valid proof of purchase; they simply state that an amount has been debited form a card by the supplier. They do not display details of what was purchased or contain VAT registration details, which are needed to reclaim input VAT from HMRC. If the Vendor is VAT registered, they should issue an invoice to you, and it is this that should be used in your bookkeeping records.
Again these are not a valid proof of purchase, they are simply a summary of invoices that have been issued and payments made during a particular period. They do not provide details as to what has been purchased, nor do they include VAT registration details needed in order to make an input VAT claim.
These are often used when a supplier requires a deposit prior to releasing goods. A proper VAT invoice should follow when the goods are dispatched, and it is the information form this that should be used in your accounting records and to reclaim any input VAT.
Be careful with invoices where the vendor is based abroad – these expenses are unlikely to have UK VAT on them, but may have VAT from another country. In this case, VAT is not reclaimable on your VAT return.
The light at the end of the tunnel
The good news is that bookkeeping doesn’t need to be difficult, time-consuming, or (dare I say it) boring. Technology such as ReceiptBank, combined with bank feeds into your accounting software, can do a lot of the heavy lifting. ReceiptBank will automate a lot of the data entry, use AI (artificial intelligence) to code it to the correct account (based on pre-determined rules), and publish it to your bookkeeping software in an instant.
Clients of Alchemy can choose to complete their own bookkeeping or outsource it for us to complete on your behalf. If you keep this in-house, we will work with your bookkeeper to improve their existing systems and processes to make sure they are efficient and accurate. If you decide to pass this on to us, we will work with you to implement the bookkeeping process that we know to be successful with our current clients.
When we complete bookkeeping for our clients, we ask that you spend a maximum of 5 minutes per day photographing receipts using the ReceiptBank smartphone app; or forwarding PDFs to a direct email address where the data can be extracted and coded to the correct accounts in your bookkeeping records. We will then reconcile the purchases with your banking records (we ask clients to enable a bank feed within your bookkeeping software to make this seamless) to establish what has been paid or awaits payment, and to identify anywhere that paperwork has not been provided for an item of spending. We will then provide a weekly report summarising any missing bookkeeping information, giving you the best chance of locating it before too much time elapsed to make this feasible.