The announcement in January 2013 by HMRC that they intended to crack down on poor record keeping by SMEs was a wake up call to all businesses. The original proposal, which went out to consultation, involved the proposed investigation of up to 50,000 SMEs each year.
The consultation period finished on 23 February and we are still waiting for the final scheme details. However, many industry bodies have condemned the proposals. The Institute of Chartered Accountants of Scotland has calculated that the cost to an SME of a half day review will be in the region of £560, far more than the £54 envisaged by HMRC. In addition, whilst a sample check by HMRC revealed poor record keeping in around 40% of cases, experts disagree with the revenue assumption that in many cases the poor record keeping was either deliberate or would lead to underpayment of tax.
With potential fines of £3,000 for poor record keeping, businesses are urged to tighten up on record keeping as a way of pre-empting the Revenue. The best way of doing this is to employ the services of a good bookkeeper or at the very least a good bookkeeping programme.
When deciding what sort of bookkeeping system to set up, the first port of call should be your accountant. It is in their interest to help you to set up a system that is right for your business, particularly as this will help them to prepare your end of year accounts speedily and without error. You may well find that your accountant includes bookkeeping or offers free bookkeeping software as part of their standard package. Alternatively, they might offer a part time bookkeeping service or be able to recommend a bookkeeper for you.
Bookkeeping is not just about avoiding potential HMRC fines. Keeping up to date with receipts and payments will help you to stay on top of your businesses finances. VAT returns will be more accurate and by using appropriate accounting software can often be produced automatically at the touch of a button. In addition, by keeping on top of finances you will be able to quickly spot outstanding invoices and chase slow payers before they get away.
Improving record keeping also means keeping track of paperwork. Your accountant will be able to work with you to help to set up systems for dealing with paperwork and information. You may well find that by reviewing your procedures you can not only improve record filing but also simplify processes and save costs. Companies such as keebo.com and receipt-bank.com offer service that will take away the meticulous job of processing and keeping track of receipts and invoices by scanning, sorting and making it available electronically.
Whilst the crackdown on poor paperwork by HMRC is driven by their desire to collect all taxes owed they may in the long run be doing SMEs a great favour. With better record keeping leading to greater business efficiency businesses will be more on top of their finances. This in turn can lead to a reduced need for reliance on borrowing as well as a reduction in charges from accountants at the end of the financial year. Leaner and fitter businesses which are on top of their records and finances will be the winners and well set for taking every advantage of the upturn in the economy.