Accounting errors and how to avoid them
Accounting errors are all too frequent which can have a detrimental impact upon any business. From incorrect financial statements affecting business decisions to penalties from HMRC, errors must be avoided at all costs.
Below we list the top five accounting errors we find and what you can do about them.
Our top five accounting errors
1. Failing to keep accounts up to date
All business owners are busy and it’s all too easy if you don’t have someone employed in the company to take care of the finances, to intend to update the accounts but keep putting it off.
By not regularly updating the accounts, you leave the business in danger of losing money due to not invoicing on time and chasing up overdue payments along with being late paying bills.
Being late in invoicing customers and bringing in revenue can affect cash flow and lead to the business finding itself with insufficient funds to continue effectively.
Not paying outstanding bills on time can cause issues and a bad reputation with suppliers who may cancel any credit account you have with them. You may also think you have more money in the bank than you have leading to spending you can’t afford.
Block out essential time in the diary to update accounts regularly. This is far easier today with accountancy software such as Xero which reconciles transactions automatically which you just have to double check.
2. Failure to track expenses
Following on from the above, failing to keep accounts up to date can easily lead to inaccurate record keeping and failure to track expenses. As time goes by, receipts have a habit of getting lost and your memory fades as to what you have paid and to whom.
Failure to track expenses is like flushing money down the toilet. You will end up paying tax on profits you didn’t have.
Using accountancy software that enables you to scan receipts instantly negates the footwell of your vehicle filling up with paper receipts.
3. Overdue returns
The latest date to file a self-assessment tax return for the self-employed is usually 31st January. For Limited companies, it’s 9 months after their year-end in most cases. For businesses which fail to submit their tax returns on time penalties will be applied by HMRC and/or Companies House.
The most common reason for not filing tax returns on time is a lack of planning. If you keep your accounts up to date, there should be no excuse for diarising to submit your accounts on time.
4. Miscategorisation
Another accounting error is due to the miscategorisation of expenses. Categorisation of expenses is crucial for any business to be able to track what money is being spent and to be able to plan for the future. Categorisation allows a business to budget for the future and to also see where savings may be made.
Aside from helping make financial decisions, if expenses are miscategorised, tax deductions on eligible items may be missed.
Again, by setting up categories using software such as Xero, mistakes can be avoided.
5. Failing to use an accountant
It’s all too easy, particularly when starting a business, to think you can do it all yourself. But as a busy business owner, if you are late filing a return, make mistakes etc you run the risk of penalties being charged by HMRC and/or Companies House creating expense and stress.
Additionally, a qualified chartered accountant can help identify tax savings you may not have been aware of thereby paying for themselves in many cases.
Using a qualified accountant gives you peace of mind. If you use a chartered accountant, they must be covered by professional indemnity insurance so in the unlikely event of something going wrong, you are covered and may be compensated if necessary.
Top tips to avoid accounting errors
Don’t fall foul of one of these top 5 accounting errors. To avoid them:
- Plan ahead
- Use suitable accountancy software
- Hire a qualified accountant
If you would like to speak to Maynard Johns Chartered Accountants about how we can help with your finances, get in touch now at 01237 472071 or email info@maynardjohns.co.uk.