Beware of the words “We can save you Tax.”

So, when you sign up with an accountant one of the first things you hope for is that they can save you tax.  Let’s face it, no-one likes paying tax and everyone expects us accountants to be able to ‘sort it’ so that they can pay less tax. 

And, whilst this is absolutely the role of your accountant to ensure you pay the right amount of tax; businesses who focus mainly on that element of their finances are usually missing the point, and missing the bigger, more enduring ‘wins.’

Having been in this game for more years than I am ready to admit, my experience shows that there are two main reasons that I personally would actively avoid any accountant who leads with: “We can save you tax.”

Firstly, and this goes for a lot of things; when something looks too good to be true, it normally is.  If the tax savings are that good, it is more often than not on the shadier side of grey.  And secondly, the accountant may be able to save you tax in the first year, especially if you have never had an accountant before, or have had a bad one; but after that what are you left with?  Your accountant needs to be good at the basics too.

Thankfully, our team at Composure Accounting have seven key ways for small business owners to save time and money, and all are pristine white!

Keep all your receipts

Those silly, small amounts do matter, and most importantly do add up…  I was astounded by the figures for this, but it is estimated that 8.5% of a typical small business’s expenses are for items that cost less than £10 and they account for one third in volume of expense receipts.  And, 60% of receipts are for amounts under £20.  Big numbers.  Figures also show that 40% of small businesses lose, or do not claim for these receipts. Wow!

So with Making Tax digital now coming onboard and accounts needing to be reported more frequently to HMRC, I cannot be clearer when I say please keep everything – even those receipts you do not feel you are entitled to claim – because you may be surprised.  Set up a separate account for business and put everything through that account, you then know what you need to look for, or can at least request copies if required as the legal requirement is to keep business accounts for the past six years plus the current year.

Know the rules

I know the HMRC rules can sometimes look daunting and I’m an accountant, but really there are some fairly basic guidelines on what can or cannot be claimed against income.  So ask your accountant;  I will always provide a simple check list, or you can look on www.gov.uk/guidance which is now pretty good.

Some of the more frequent missed opportunities that I see time and time again are for protective or branded clothing, and business owners that are not off setting costs for working at home.  There is a financial impact when using part of your home exclusively for work purposes and there are actual, or flat rate costs that can be associated with that.  The business would pay to work in a serviced office, so set against income the costs for working at home too.

Always remember:  There are things that you know you know; things you know you don’t know; but what about the things you don’t know you don’t know?  So check!

Do your admin regularly

Looking at a huge pile of paperwork spanning several months, some of which you cannot immediately remember exactly what it was for, can be soul destroying. 

Regular bookkeeping, apart from it being a good business practice, can help emotional wellbeing too.  We all like that ‘Yes – I’ve done it’ feeling, so I always encourage clients to scan and file paperwork as it comes in, and to send us information on a regular basis too.

Strangely enough with all this Covid uncertainty, keeping accounts up to date and knowing where your business stands financially is now more important than ever.  HMRC is now asking that sole traders know their current financial position and forecast for the following months, to check their eligibility for claiming the SEISS grants.

And don’t forget the rolling 12-month VAT threshold.  No-one wants to pay additional penalties for breaching it, and income is treated as VAT inclusive so knowledge is key, along with the need to set recovery targets going forward too.

Understand your cost drivers

Think of it this way… If you are not making a profit, you are paying your client to work for them. 

There are many ways to review your cost drivers, but to start, break your business down and look at the individual product lines or services.  Most importantly look both outside and inside; as it may be something your customers are doing, or your own internal processes, that makes it not profitable.

For me, a favorite phrase that always reminds me to be smart is: Turnover is vanity, profit is sanity and cash is king!

Get rid of anything that “doesn’t wash its face”

With your bookkeeping up to date, it is easy to take a good hard look at what you spend your money on.  Think of the 60% of receipts that are under £20!  This is not about being penny pinching, but it is about value.

Paying for subscriptions that are rarely used, updating software without thinking do I really need it, buying a cup of coffee, are all relatively small incidentals, but when accounted for together can have a big impact on the bottom line.

Broaden your accepted payment methods and take payment in advance or stage payments

We have all done it.  That is, work on a project for several months and then bill in full at the end.  To work smartly, you should be matching the payment to the delivery of services as work is completed. So, if you work over a period of time don’t wait until the end to get paid.  The same goes for outgoings on any materials purchased on behalf of a client. Your business should not be their unofficial credit card. 

Gone are the days of having to get a second signature on a hand written business cheques and the many delays that would cause.  With so many different payment options such as Stripe, and GoCardless, as well as the more traditional BACS payments, it is easy to offer more than one payment method.

Your focus should be on driving business and good credit control, not unnecessary admin.  Make it easy to pay, the payment terms clear and stick to them.

Automate

But why, I hear you ask… It will cost me more; I hear you say…

If you think that spending £10 to £30 per month on software is a “waste,” perhaps you need to take a serious look at your business model.  Surely accuracy and speed important to you? Always remember in business, time spent is money spent.  So automate.

Software options will now allow you to integrate your booking system or online store, with your stock records and delivery schedules.  With online bookkeeping software, Xero is our preferred option.  You can align it with bank accounts and set up online invoicing – so no more word documents and attaching PDFs to emails.  It can also be programmed to send automatic invoice reminders and keep you ‘behind the scenes,’ as it performs a role so many hate.

Other software applications include document management programmes and our favourite of these is Dext Prepare. 

Would you would like to work with an accountant that helps you to make changes to the small things, as well as looking at the overall bigger picture to maximise your business accounts and manage your tax liabilities?  If that is a yes, please contact us to find out more about how we advise and support our clients.

About the Author
Carolyn Burchell trained with the UK’s top firm of accountants, qualifying as a Chartered Accountant in 1996. Carolyn moved into industry in 1997 working on a number of commercial projects and managing Treasury and Credit functions before taking a career break to have a family. In 2009, Carolyn decided to enter into the stringent Chartered Institute of Taxation examination programme, qualifying as a Chartered Tax Adviser in 2012.

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