Record keeping – What you need to know – Part 2

Recording the books

If you read the first part of this blog, you should know how you are going to file everything which means you can now start thinking about how you are going to record everything. HMRC have not issued any guidance about how you should maintain your records. You have two choices here, you can use a simple spreadsheet or you can use bookkeeping software that is designed specifically for the purpose.

Often, for the small sole trader, using a simple spreadsheet is all that is required and many will find it easier and quicker to use, it is also cheaper than going out and paying for a desktop software package such as Sage or Quickbooks or the monthly subscription to cloud based software like Kashflow, Quickbooks or Xero to name a few. Most likely your accountant can give you guidance on setting up a spreadsheet that will work for both you and them. The same principal as before applies, keep it as simple as possible.

I have developed a spreadsheet that I use for my clients who do not wish to use a software package and I work with the client to tailor it to their business requirements. It is based upon the incomings and outgoings from the bank account and any cash in hand that you may use (ie to buy a book of stamps etc). There are formulas embedded to make the totals and bank reconciliation as easy as possible and I have embedded a check to ensure that all transactions are carried across fully and nothing is missed out. For the small business, it can contain all the information for your monthly bookkeeping and help you to prepare your VAT return if you do so on a cash basis. What this does not however tell you is, who owes you money and who you owe money to, that you will need to do separately. I suggest, you may want a separate section in your filing for outstanding invoices that you simply move to the ‘paid’ section as and when they are paid. At the end of your accounting year and when you prepare your VAT return (if using the accruals basis), you should make a list of anything outstanding for you or your accountant to include when preparing your accounts and VAT returns. If you would like more information about the bookkeeping template than please email me on info@redgeraniumco.co.uk.

As you grow, you may decide that you would benefit from going down the software route, there are many different packages available. These days, I tend to find more people are leaning toward the cloud based programs as these do not tend to have a large initial outlay for the software, there is no support issues, and they do not take up space on the hard drive of your computer.

Monthly costs for these cloud packages vary from free to appx £20per month as does the capabilities of each package. The trick is to know what you need/want the package to do for you and match that to the relevant provider. If you have an accountant that uses these programes it can be cheaper to purchase your subscription through them as they may be able to obtain a discount from the provider.

Bookkeeping software can not only provide a place to record your accounts but it can also help you with raising invoices, dealing with credit control issues, keep track of your stock, and calculate and submit your VAT returns. Most programs now will allow you to import your bank transactions into the program directly from the bank therefore meaning you no longer need to laboriously input all the transactions manually. There are much more functionality available but those listed above tend to cover the most commonly used.

The choice between how you record your information is up to you, the key is to make sure you capture it all and it is in a format that allows you to keep accurate information. Don’t let your records linger in the corner of your desk for months on end, try to maintain it as frequently as possible. Not only will it be easier to remember what you have done, but it will ultimately help you to maintain an accurate picture of how your business is doing and pinpoint when you may have cashflow difficulties or even surplus cash.

You must remember that according to HMRC ‘If you do not keep adequate records or you do not keep your records for the required period of time, you may have to pay a penalty.‘ If you would like to know more about the HMRC guidance then you can view their guidance document here.

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