A Paperless System

The File Naming Convention

Proactive operates a paperless system and that means we need a strict file naming convention. Every file name is unique and the various collections of numbers each serve a different purpose.

1234567890 622700 20120405 20121031 1700
tax return
Client reference number Document code Tax year or
Trading year
Creation date and time
Narrative

We have over one million documents; and by using this system we can (normally) find any document within a few seconds. A number of our clients have asked for more details and so here’s a basic summary:

Every client has a 10 digit reference number.

Every document type has a 6 digit number code.

All dates are shown as 8 digits, in scientific notation – yyyymmdd.

If a document has more than one date, generally the first date is the tax year or the trading year, and the second date is the date the document was created. Occasionally, the rules are adjusted, and extra numbers may appear for a variety of reasons. It’s the first 10 digits that link the file to a client, and the next 6 that tell us what the document is about. At the end of the file name a short narrative is usually added to make things clearer. That might be your narrative for files you placed in DropBox, or our narrative if we are the originator of the document.

    • 100XXX – correspondence
    • 200XXX – bank
    • 300XXX – bookkeeping and related VAT
    • 422XXX – accounts – self employed
    • 444XXX – accounts – partnership
    • 488XXX – accounts – limited company
    • 500XXX – One off activities
    • 622XXX – tax matters – personal
    • 644XXX – tax matters – partnership
    • 655XXX – other VAT matters
    • 666XXX – Companies House
    • 677XXX – PAYE
    • 688XXX – tax matters – corporate

On DropBox you may see lots of documents with recognisable file extentions like PDF and XLS. We also have some specialist files which work with our accounts and tax software. Anything with a TCS or VTR extention will not work without the right software and may be corrupted if handled incorrectly.

DropBox Folders

When working with DropBox we ask that clients add records to the pending folder for the relevant year. When we work on them we move them into a separate workspace and then afterwards we file them in the processed folder for that year. Reports that we generate (a set of accounts, or a self assessment tax return, etc) are added to the reports folder. Occasionally, documents with an enduring relevance (like a share history) are stored in a PN (permanent notes) folder.

We are trying to strike a balance and fine tune the system, so that both humans and computers can cope with the demands and complexities that accounting involves.

Annual Accounts Checklist

This is a checklist for annual accounts work on companies and on self employed businesses. If we perform the quarterly bookkeeping for you, then this checklist is not needed.

Please let us have the following documents covering the whole trading year.

Bank/Finance House Items

• Copies of all business statements on current accounts, deposit accounts and loan accounts. Copies of all business statements on credit cards, commercial cards and PayPal accounts etc.
• Loan agreements for any new loans taken out during the year, showing (a) a simple analysis between the loan capital and the interest due and (b) a schedule of payment dates including any variations in the first or the last payment.

Bookkeeper’s Reports

• Trial Balance
• Draft Profit & Loss Account
• Draft Balance Sheet
• A detailed analysis of all debtors and all creditors on the Balance Sheet

VAT Reports (if registered)

• Copies of all VAT returns for the quarters spanning that whole trading year
• If the VAT quarters are not aligned with the trading year end, then copies of returns for 5 quarters will be needed so that we can see the picture for the whole trading year.

Year End Planning

Can I reduce my tax bill?

Can you reduce your tax bill? It depends! What does your business plan say? Ultimately you want to be paying lots of tax, more than you can imagine, because if you were, then just think how much profit you’d be making!

So before we examine how to reduce tax, you should examine how to make more profit in the medium to long term. How is business going? How much impact do your regular planning sessions make? Do you leave things just until the year end, and only review them once a year? And if so why?

A pragmatic business will consider things more often. Anyway, here’s a “once a year” guide for those who need it. These measures may help reduce or postpone profits (and therefore taxes), but you still need to bear in mind whether this is appropriate commercially. If you are going to talk to the bank about a loan, then you might want to increase profits and not reduce them!

In order to make the accounts look good and minimise any tax liability, you can consider the following:

Chase debtors in order to get payments into the bank account now. A good bank balance on the year end date helps.

Is there enough money in the bank to cover the tax forecast you have? Consider how much money you have taken out of the company. Ignore salary and reimbursed expenses for the moment, and just think about additional drawings. If the additional drawings exceed your net profit, then you may have taken out too much. HMRC charges income tax on a personal “benefit in kind” if your company is providing you with (what is in effect) an interest free overdraft. If this is likely to be a problem, you may want to consider injecting some cash into the company bank account before the year end date. The important thing is to have a healthy balance sheet on the year end date.

If you can legitimately delay issuing invoices to clients this month then do that. Issue them in the first month of the next trading year. Depending on the accounting treatment, that may put potential taxable profit into the later trading year and delay the tax liability for a further twelve months.

Ensure that you, and any of your staff, prepare expense claim forms for all expenses incurred by the end of this trading year.

Bring forward any anticipated expenditure on major purchases. For example, if you were planning to buy a new computer early in the next trading year, buy it this month so that tax relief can be claimed sooner. This can be beneficial, even with more mundane items of expenditure. If you are about to replenish anything, incur the expenditure now, before the year end! Each item on its own may not be much, but they soon add up and they make a difference.

Tax relief cannot be claimed for holding stock. Do not buy more stock this month, wait until next month. If you sell goods as opposed to services, or if your business is a mix of goods and services, then you need to plan a stock take for the last day in the trading year. A stock take is going to be easier if you aim to have as little stock as possible around the year end date. Tax relief can only be claimed for stock which has been sold so there is no point holding onto any more stock than you really need to!

Look at the bad debts that have arisen during the year. If any of these debts are more than 6 months old, write them off now and claim bad debt relief. Prepare a further copy of the original invoice and (in red ink) write across it “Bad debt relief claimed” and write the date that you made the decision. You have to make that decision before the year end date. In order to qualify for bad debt relief for both corporation tax and for VAT, you must write to the debtor stating that you consider the debt to be irrecoverable and you are claiming bad debt relief.

Consider any invoices that have been issued which may give rise to a credit note. To the extent that you can predict the need to raise a credit note, do it now before the year end.

Do a ratio analysis. Ratio analysis is exactly what HMRC does, so it’s a good idea if you do it before they do. Compare your own profit and loss forecast for this current year with the formal accounts for last year. Think along the lines of “are my travel costs this year in line with last year”? If expenses in the current year are significantly higher than the year before, you need to be ready to explain that extra cost in the event of a tax office enquiry.

Likewise, if one expense category in the current year is significantly lower than last year you might have missed some expenses. Think about anything that could have been overlooked and which needs to be put through the books . . . in these last few weeks . . . before your year end.

All these things should already be in the “plan, do, review” section of your business plan. What does your business plan actually say?