If you’re an SME, get organised now to help you achieve financial success in the coming tax year. By taking the time to adopt record keeping systems early on, you can ensure compliance with tax regulations, minimise the risk of errors or discrepancies, and maximise your tax deductions and credits. Additionally, proper organisation enables you to accurately track your income and expenses throughout the year, providing valuable insights into your business's financial health and helping you make informed decisions to drive growth and profitability. 

We have been in touch with two local accountancy firms Turner & Co and MA Accountancy Group who specialise in supporting small local businesses in Hampshire, to tap into their expertise. 

If you are a sole trader or a start-up this advice should be particularly helpful to you.

1. Keep your personal and business finances separate.

While it may seem simpler to keep your personal and business funds in one account, it can lead to confusion when you come to separating those elements for your tax returns.  There are lots of advantages to keeping your personal and business finances separate.  You can make the most of tax deductions and benefits and avoid the pitfalls of mixing personal and business income streams.  This could result in you paying more tax than you owe - and you may face cash flow issues in the future.  

Having separate business and personal accounts also means you can limit liability.  In the event of legal action against your business, having business money in a separate account means creditors and legal claims are limited to the assets within the business account, and cannot access your personal assets.

Janette at Turner & Co urges business owners to do this and says, “When starting up your own business it is often tempting to take the easy route and use your personal bank account for business transactions.”  She explains that “this means that if HMRC queries the completeness of your accounts they are entitled to review all your bank transactions, not just your business ones and challenge you on their treatment if you are not able to answer their queries to their satisfaction.  Avoid the risk and always keep your business and personal banking separate, that way HMRC will only be able to request the business bank information.”

Additionally, it is important that your clients and suppliers are comfortable and secure using your business and having a separate account gives your business a more established feel.

“Even as a sole trader, there is huge value in having a separate business bank account.” Nicky at MA Accountancy Group in Hampshire explains.  “Not only does it make the business look more professional, but it’s far easier to accurately track income and expenditure when you don’t have to sift through hundreds of personal receipts.”

2. Be savvy about Basis Period Reform

Basis period reform changes the way trading income is allocated to tax years.   HMRC will allow a year-end that lands between 31 March and 5 April to be treated as if it falls at the end of the tax year.  This effectively breaks the link between the accounting date chosen by a company and when they are taxed on their profits. All self-employed individuals and partnerships will have to report their business tax information to HMRC on a tax year basis, regardless of their accounting period. The tax year 2023/24 represents a transitional year, in which we switch over from the current year basis of assessment to this new tax year basis.  

Janette at Turner & Co warns “These reforms represent a fundamental change in the way your profits are taxed, HMRC see these changes as a simplification but for many businesses they will add significant complications.”  Janette goes on to say, “At a high level you will no longer be taxed on the profits per your accounts year end but for the actual profits earned in the tax year.”

“There are definitely some challenges with this reform, particularly in the transition year so I

would suggest getting your information together in advance” Janette advises, “so when the submission is due there are no outstanding issues or missing information that might delay your Self-Assessment submission.”

3. Get some software.

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA), which will change how we submit tax returns, comes into force from April 2026.  The new rules require all sole traders, partnerships and landlords with income over 50k (30k from 2027) to submit quarterly returns to HMRC, with a final submission at the end of the year to confirm income tax due.  As Janette at Turner & Co advises “it might seem like a long way off, but it is best to get into good practice and start sourcing the appropriate software upfront and make life easier in the long run.”  

Going digital will enable you to create a more effective and flexible accounting and record-keeping system.  You will need to consider which software solution will work for you to do this.  An Excel spreadsheet may be fine for traditional bookkeeping, but the MTD ITSA stipulations mean you’ll need a more precise and adaptable software solution. Tools such as AutoEntry or Dext Prepare, combined with a cloud accounting platform like Xero or Sage will help you get those documents, receipts and bank statements digitised and recorded.

“Get ahead of the game” advises Nicky from MA Accountancy Group, “whether you use an accountant or not - you will need software to enable you to do this. The good news is that many banks now offer free bookkeeping software with their current accounts so this doesn’t need to be costly and will put you and your business in great shape for the future.”  She goes on to say “Of course in the meantime, you will benefit from the reporting that even the simplest software will produce.  A profit and loss report will accurately show you how the business is doing, to enable you to make informed decisions about the future.”

4. Know your dates.

For business owners, understanding crucial deadlines such as the year-end, account submission dates, and tax payment deadlines is critical for financial stability and compliance. Knowing your year-end allows for effective planning and preparation, ensuring that financial statements accurately reflect your business’s performance and position. 

You must also be aware of when accounts need to be submitted to HMRC, as missing deadlines can result in penalties and reputational damage. Being aware of when taxes, including VAT and PAYE are due ensures timely payments, preventing unnecessary fines.  By staying informed about these key dates, your company can uphold financial integrity, avoid compliance issues, and focus on driving your business forward.

As Nicky at MA Accountancy Group advises “Don’t leave these things to the last minute - get your submissions done early, to avoid any last-minute nasty tax surprises!”

5. Create a Simple Cash Flow Forecast.

Creating a cash flow forecast will show you whether you have the cash to pay your invoices and suppliers. Janette at Turner & Co explains “When starting your business, it is easy to get profit confused with positive cash flow, they are different, and you can have a profitable business that will not be able to meet its liabilities due to lack of liquid funds.  That is why it is important to have a basic cashflow forecast so you can keep on top of your liquidity. Remember Cash is King.”

Keeping fully up to date with the cash flow needs of your company enables you to see how much money your business has or needs in a given time frame.  Michelle at MA Accountancy Group warns that “simply looking at the balance in your bank account does not provide a true reflection of the business performance.”  She goes on to say, “Whilst none of us have a crystal ball, we do know our businesses and with some careful forward planning, will be able to identify where any cash pinch points might be.”  Michelle states that “Typically these might be around the time that taxes need to be paid, or maybe month end when salaries are paid.  A simple cash flow forecast can help you plan.”  

By starting the new tax year on the right foot with a well-organised financial system in place, you set yourself up for smoother operations, improved financial management, and ultimately, greater success for your SME.  If you’d like to seek financial advice from Nicky and Michelle at MA Accounting Group, you can contact them at [email protected].  To get in touch with Janette or one of her colleagues at Turner & Co drop them a line at [email protected] or [email protected].

MA Accountancy Group offer a selection of downloadable templates and guides to help with the bookkeeping for your small business.  Click here for more information.  Templates & Guides - Mad About Bookkeeping Ltd