Keeping accurate accounting records is an essential task for every successful contractor. Not only can you ensure that you stay on the right side of the taxman, but you should also be able to see exactly what your financial situation is at any moment in time.
Successful bookkeeping and record-keeping will almost always include following these three steps:
- Setting up effective processes to start with.
- Managing your accounts throughout the year.
- Keeping hold of records for the correct amount of time.
To ensure that you are accounting for everything you should be, here are five tips from Nixon Williams on how to maintain excellent bookkeeping and accounting records.
Know what you need to track from day one
How you operate will affect what records you are required to keep. However, regardless of if you are a sole trader, limited company director, or work through an umbrella company, there are some records that should be kept from day one. These include proof of income (sales receipts or invoices), expense receipts, banking records and VAT information if applicable.
HM Revenue and Customs (HMRC) have not made any stipulations about how records must be kept. So whether you organise your accounts online, via your smartphone or on paper is neither here nor there, as long as you are keeping records. It is a good idea to set a process, and follow it from the outset. This could be as simple as spending ten minutes a week noting all income and outgoings in an Excel spreadsheet and then filing the original copies of your documents away in a safe place.
Use apps to help you
In today’s world where there is an app for anything, there are plenty of ways that you can keep track of your finances on the go. For basic bookkeeping, accounting apps provide the distinct advantage that they can be accessed via your phone or tablet anywhere, so you can see a snap summary of your finances wherever you are. Storing your accounting information on the cloud means that whatever method you use to access it, it will always be up-to-date. If getting to grips with a new app doesn’t sound too appealing, simply upload your bookkeeping spreadsheet to Dropbox to access your accounts anywhere and everywhere.
For more in-depth accounting or bookkeeping an app will probably not suffice and you will need to move things to a bigger screen. An Excel spreadsheet is normally all that most contractors require, but if you would like something more substantial accounting software could be a good way for you to keep track of your income and outgoings. Whether downloadable or web-based, accounting software need not cost the earth.
Read our guide to choosing the best accounting software for your limited company.
Simple software systems are free to download and suitable for those looking to record their everyday income and outgoings. More extensive systems will usually require a small monthly fee, but will often come with a free trial period. These systems generally include some type of telephone or email support, so even though you are doing your own accounts; you are not alone.
Keep records for the correct amount of time
It is wise to keep copies of all your accounting records, because if HMRC were to investigate you they can go back as far as six years. Now, six years’ worth of receipts and invoices could amount to a lot of paper, so many contractors will keep digital copies of their records, ensuring of course that they back up their files.
If all else fails… call in a professional
Tempting as it may be to save money and do your accounting yourself, using the services of a professional accountant could save you time and money in the long-run. Accountants will ensure that you are working as efficiently as possible and their expertise and tax knowledge will keep you penalty-free. For a monthly cost some accountancy firms will even complete your bookkeeping on your behalf, or at the very least provide access to their bookkeeping software.
For further reading, find out why choosing the right accountant is so important.