Share
Bookkeeping Mistakes
Bookkeeping mistakes can be easy to make but a nightmare to unravel. We have put together a series of nightmare scenarios that could happen and how to fix them or avoid them altogether.
Using the wrong VAT code
We have seen it before where someone will claim VAT when it’s not claimable or they’ll claim 20% VAT on everything. You have to be very cautious about claiming VAT. Firstly, If you’re not VAT registered you cannot claim VAT at all. Secondly, not all entertainment is claimable. If you’re ever unsure about whether or not to claim VAT, always ask your bookkeeper or accountant, don’t risk getting it wrong.
Claiming personal expenses against the business
This is a big no, no, but is surprisingly easy to do, especially if you’re self employed or a small business. The lines can feel a little blurry but you have to ensure you get this correct. HMRC have strict rules and the general guidance is that it should be ‘wholly and exclusively’ for business. So if you can use it personally, you probably can’t claim it. If the only reason you have the expenditure is because of your business, it’s likely claimable.
Categorising expenses incorrectly
Avoid using “General expenses”, “Miscellaneous” or “Sundries” at all costs because before you know it you could have thousands of pounds in these categories and you may not have a clue what they’re for without investigating. These categories could be heavily scrutinized. Here’s an example of some really useful categories you could have: salaries, Insurance, advertising, software, professional fees, travel, utilities, IT equipment, office refreshments, rent/mortgage, and shipping costs.
Uploading receipts and invoices that aren’t fit for purpose
One of the most common examples of this is uploading card receipts. When you ask for a receipt, always ask for a VAT receipt, because you can’t claim VAT from a card receipt. The card receipt also doesn’t state what it is you’ve bought either.
When uploading invoices/receipts always ensure they are actual invoices/receipts and not delivery notes, statements or shipping confirmations. Also ensure that you take a clear picture/scan of the entire invoice and not just the amount. If it doesn’t show the whole invoice then no-one will know what it was for, who you made payment to and if there was VAT on it. It could get rejected for both tax and VAT claims.
Not processing receipts and invoices quickly enough
If you procrastinate with this you’ll likely cause yourself multiple issues. Firstly, you could end up losing receipts, forgetting what half of your receipts were even for and may struggle to remember how you paid for them. Secondly, and more importantly, your data will not be up to date meaning you can’t possibly make sensible financial decisions.
Disposing of financial paperwork/data too soon
It’s essential you keep 7 years worth of bookkeeping records. At any point you could be investigated by HMRC or another body that may need to audit you. It’s important you can prove where money has been moved around. This doesn’t mean you have to keep boxes of receipts, you can scan them and save them to Google Drive/Dropbox/OneDrive etc. If you’re using softwares like: Dext Prepare/Commerce, Apron, Pleo, Xero, QuickBooks, Hubdoc and other financial software and apps you may find that those tools are keeping most of the paperwork for you anyway. It’s worth looking into and asking your bookkeeper, accountant, or software supplier about where your data is stored.
Not processing/reconciling your bank accounts within your software
You may have a bank feed in place within your accounting software, but this does not update your records without your intervention. Your software may suggest how to process a transaction and you may have rules in place, but you need to ensure all transactions are processed on a regular basis. Not doing so means any reports you run will not be accurate including your Profit & Loss and Aged Receivables. If you haven’t updated your customer receipts, you can’t send customer statements/chasers.
Another reason to keep up to date is that there may be transactions for which you need to find supporting documentation to assist with a VAT claim – the longer you leave this, the more difficult this may become.
A supplier might be chasing you for money. If your records aren’t up to date, you can’t easily check this. Sometimes suppliers make mistakes and they’ve not allocated your payment correctly or missed it completely. You could be paying out money you don’t owe.
If all your banks (including credit cards, petty cash, till accounts, payments processors such as Stripe, PayPal, etc) are up to date, it’s likely any reports you run are somewhere near accurate. Processing and reconciling your banks is a huge part of your bookkeeping processing and should be given priority.
Not cross checking your bank feeds with your bank
Technology is not perfect and so even if you have an automatic bank feed set up you should never presume that it perfectly represents what’s in your bank. Always cross check this with your bank statements or banking app.
Missing filing deadlines
Nobody wants to receive a fine from HMRC but if things aren’t filed on time then you’re ultimately going to get one. Always communicate with your bookkeeper or accountant to ensure everyone has the paperwork they need and when they need it. Give plenty of time for everything to be processed. Just because you get the paperwork to your accountant or bookkeeper before the deadline, doesn’t mean they have enough time to get the work done before the deadline. This adds unnecessary pressure and stress and can lead to errors or omissions.
Getting your fixed assets confused
A fixed asset is something you have purchased that is a tangible item and you are not going to fully consume during an accounting year and the item should also have a life expectancy of more than one accounting year. It will be something you have purchased that you are not intending to resell within the current accounting year. It also needs to be over a certain value – this value is determined by the business and should be relative to the company’s turnover.
For instance, a printer costing £69 is not likely to be classed as a fixed asset due it’s low cost but a printer costing £5,000 would likely be classed as such. The following are examples of purchases we see processed as fixed assets which shouldn’t be:-
> A pack of batteries at £10
> Motor expenses
> A laptop charger costing £15.99
> A set of keys for the office
However, you may not need to used Fixed Assets at all. Fixed Assets are part of your Balance Sheet and so any transactions you post as fixed assets will not show on your profit and loss. For most small to medium businesses, HMRC will give full tax relief on the majority of fixed assets purchased, and so the only reason you might want to process transactions as fixed assets is to improve your Profit & Loss.
It’s a complicated subject, so if you’re not sure, just make sure you don’t post the batteries, laptop chargers, keys, and motor expenses as fixed assets, and ask a professional to review everything at least once a year.
Need help?
If you are struggling with your bookkeeping and need advice then we have a support plan you might want to take a look at here. You can also book a meeting with us below.
