Case study – catching up with your records
Posted on 28th March 2019 at 09:58
Here Lucie explains how one business owner regained control of his bookkeeping and VAT returns.
It’s easy to lose track of your financial records. In this case, a business owner just hadn’t had time to find a replacement when his previous bookkeeper left.
When he realised that his VAT return was due the next day, he knew he was going to have problems – he hadn’t done any bookkeeping for five months.
That’s when he came to LEO Bookkeeping Services. At the time he had 1,500 unreconciled transactions in the bank account, excluding cash payments.
The VAT challenge
One of the big challenges was to sort out which receipts were zero-rated and which were 20% rated for VAT. It was also important to be clear about the difference between zero-rated and exempt goods and services.
Zero-rated – this means that the goods are still VAT-able but the rate you charge your customers is 0%. They still need to be included in your VAT accounts and your VAT return. Zero-rated goods include:
• books and newspapers
• children’s clothes and shoes
• motorcycle helmets
• most goods you export to non-EU countries
• goods you supply to a VAT registered EU business.
Exempt – these are goods or services for which VAT can’t be charged. If you buy or sell an exempt item, you should still record the transaction in your general business accounts, but not in your VAT return. Exempt items include:
• postage stamps
• many medical supplies and services.
For some regular suppliers the business had a log-in to place orders, so it was easy to check VAT. Otherwise we just had to find and check the invoices or receipts, which was time-consuming and pretty frustrating.
One day wasn’t enough time to sort out the VAT return, but because we were able to produce an accurate return quickly, the fine was much smaller than it might have otherwise been.
Although we’re still working on clearing the backlog, we have everything properly coded and recorded, so VAT returns will be much more straightforward in future.
Previously there was just one financial report a month, so bank reconciliation was a real problem. This is a good example of how businesses can waste a lot of time if they don’t have good processes in place.
With the new processes we’ve put in place, life is going to be a lot easier.
Using the Hubdoc app, receipts can now be photographed on a mobile phone and added to the expenses records. There’s no need to worry about losing them anymore. It’s also important because things like till receipts can fade over time and can become unreadable. Now images are all safely recorded and allocated straight away.
The till system in the shop is also being changed so that transactions will be automatically added to Xero.
We’re also doing fortnightly bank reconciliations, so the financial position is clear.
Once you’ve lost track or your day-to-day transactions it’s difficult to manage overdue payments.
We can now see where payments are overdue and can follow them up straight away. We’re also be putting some good practices in place to reduce the risk of late payments in future.
How does it feel?
All my client could say was “It’s a massive weight of my shoulders”.
Even better, he can see what’s happening on a daily basis and he’s no longer plagued by a growing stack of receipts, because now they can all be recorded immediately.
If you would like some advice on improving your bookkeeping systems, we’d be happy to talk with you. Please get in touch.
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