I handed my annual accounts in to my accountant this morning, so that he can have the exciting job of filling in my tax return, and preparing my company’s accounts for the year. It’s a ritual I’ve done every year since 1999 after my first year in business, and I’m very happy to announce that this year was totally headache free! Since it’s usually a process fraught with moments of shouting, tearing out of hair, and much panicked sorting through of paperwork, I thought it might be helpful to people if I shared my secrets.
Before I go any further I want to make 2 things clear, first, I am not an accountant, so don’t take my word on anything tax related as gospel or legally binding, and secondly, even if you’re a very small business, you would be well advised to get an accountant to do your tax for you, rather than attempt it yourself. I’ve stressed this before, back when I first started the blog, but in a nutshell, the money you pay an accountant will be made back several times over in the tax they save you, plus you get to spend your time doing the thing you do best, rather than filling in forms and trying to calculate things like depreciation. If you employ an accountant, than at the end of each year your job simply consists of supplying them with all the documents they need to complete your return, and it’s the collection of these that I’m concerned with here.
I’ve covered lots of this before in my “Good Habits” post, but want to go back over some of it, as in the past couple of years I seem to have finally got things down to a fine art. The best habit above all is to deal with things as they crop up, or as soon after the event as possible. When you get the notification email from your broadband supplier that you can now go and view your bill online, log in, navigate to the PDF, print it out, and stick it in the right folder. Now you can forget about it until the end of the year. It can be very tempting these days to leave all of this undone, as everything is now supposedly stored online, so all you’d need to do at the end of March each year is just go and bulk download all your documents. This is one option, but a word of warning that not every supplier keeps more than a few months of statements handy in your “account” part of their website. It’s a much safer bet to simply print these things out and file them as you go along.
By this same token, when invoices get paid, mark them as paid there and then, gather up all your receipts into monthly envelopes – all that exciting sort of stuff. The great thing about all this, is that none of it requires a shred of financial sense, just very basic organisation, which I believe everyone is capable of.
Accountants will vary slightly in what documents they require from you, and increasingly nowadays records can be submitted to them electronically. You may even feel OK giving them your password to various sites, and just letting them get on with it, but I’ve never done that with my accountant. They’re a great team, but they seem to struggle a bit with email, so I think I’ll wait a little while before granting them access to all my online financial info!
Here’s the full list of what I submit to my accountant every year:
All business bank statements
All invoices (marked as paid or not, and if paid, with date and amount)
All invoices from suppliers (marked as paid or not, with date and amount)
Receipts. I split these into payment types, as I have petty cash, and 2 cards, 1 debit and one a monthly company credit card.
Bank paying-in book and cheque book.
Dividends (I’m a limited company, so the way I pay myself is via dividends)
All of this explains the basics of what money has come into and gone out of the business throughout the year. It’s also the “easy” bit that just involves gathering documents up and shoving them in respective folders. Next comes the bit that I always think is a bit more “fiddly”, as historically I tended not to do this as I go along, and generally only remembered towards the end of the year.
All personal interest earned (savings accounts etc)
Any other personal income (private rental or the like)
Personal Pension contributions. You have started a personal pension haven’t you…..
Use of Home. This is an allowance based on the fact that working from home I’m permitted a percentage of my bills against tax. Check with your accountant for exactly how to calculate it.
Oyster card contributions. As with use of home, this comes out of my personal account, but it’s understood that a certain percentage of my travel on London Transport is for business
Gift Aid contributions.
Mileage contributions. This gets fiddly, as Company cars are no longer the tax saving they once were. Instead, I own my car, and my business pays me for each business mile I drive. Only up to 10 000 miles a year though, after which the amount it pays me drops.
Ebay/Paypal statements. Any equipment I’ve sold via Ebay, or anything I’ve bought through Paypal.
Purchases and sales to the EU or other international clients/suppliers.
I also always include an explanatory note, which will flag up any anomalies, major expenditures or disposals of equipment throughout the year. It’s worth taking a little bit of time to label things within your accounts, as certain things are more tax-deductible than others, and you can’t expect a non-photographer such as your accountant, to know what every obscure bit of equipment is.
If you follow good habits throughout the year, and keep on top of all this stuff, then handing in your annual accounts is nothing more than an exercise in collating all of this. There should be no need to develop a nervous tic as you try and fathom out what some receipt from 9 months ago was for, or spend hours rummaging through your filing system or inbox looking for the receipt for something you bought online last year. Take it from someone who has been there 17 times, and doesn’t want to go back! The big difference for me this year has been that over the course of the past couple of years I’ve been much more thorough and careful when it comes to accounts time, and have dilligently created the lists you see above. This has massively reduced the amount of oversights, extra trips to my accountant, and nagging thoughts at the back of my mind that I’ve forgotten something!
One last quick point, that should hopefully be obvious. I’m based in the UK, and these are the requirements for someone running a Limited Company. They’ll be slightly different for a sole trader, and slightly different again if you’re based in another country. At root though, and accountant needs to see records of what money came into the business, and what money came out – it’s a simple as that.