October is upon us, and the shops are full of ghoulish costumes. So, to get in the Halloween spirit, we’re serving up some Tricks & Treats as we look at some common accounting mistakes tradespeople
make (🎃 the Tricks). But we’ll also share solutions to help you avoid them (🍭 the Treats)!
Common Accounting Mistakes Tradespeople Make:
1: Failing to Count Costs:
With material prices increasing, failing to get your job costs knuckled down can eat into your profit.
The Solution: When you quote for work, let clients know how long the price is valid. Add a line detailing a minimum percentage increase if the client doesn’t accept your quote within the stipulated timeframe. Introducing this small caveat allows you to change the quote should your costs increase. It also serves as an incentive for customers to accept your quote promptly.
2: Failing to Keep the Cash Flow Tap Open:
Cash flow is the lifeblood of any business, but managing it can be challenging, especially for tradespeople. You need to pay your subbies, and delayed payments from clients and unexpected expenses can be a make-or-break situation.
The Solution: Invest in accounting software like Xero to keep a close eye on cash flow (and many other things). Consider offering incentives for early payments from clients or implementing overdue fees to ensure timely payments. Or talk to us for help with credit control services.
3: VAT Ventures Gone Wrong:
If you reach or know you will achieve a turnover of £90,000 in 12 months, it’s time to register for VAT.
As bookkeepers for tradespeople based in Chichester, we often see small sole trader businesses reach the threshold, register for VAT, and then regret it. This is often the case when they provide their services to the public rather than a business. Adding 20% VAT to their bills can price them out of the market, making it difficult to secure contracts.
The Solution: As a smaller business or sole trader, it’s worth considering whether to cap your income at £90,000 pa to stay under the threshold.
4: Counting the Cost of Clothing:
There’s been a bit in the news lately about clothing and expenses! This reminded us that one of the most common mistakes business owners make regarding deductible expenses is claiming for clothing and dry cleaning.
The Solution: Brand your shirts and wear your uniform! Clothing is tax-allowable if it’s a uniform or protective clothing you need for your work. For example, if you’re a builder and need steel-toe capped boots, they are tax-deductible.
Read this article from the Knowledge Hub archives for more information on tax-deductible expenses.
5: Overspending at Christmas:
With Christmas approaching (yes, we’re all about the holidays in this article!), it’s time to think about tax rules around Christmas. Remember your party costs must not exceed £150 per person (from crackers to carriages and everything in between). This catches many business owners out because they think the £150 per person is an allowance. They often believe that if they spend £180 per person, only £30 is a taxable benefit, but this is not the case. If the per-head calculation exceeds £150, then the total amount of the event is chargeable to staff as a taxable benefit.
The Solution: Read this article from the Knowledge Hub archives that clarifies tax rules around Christmas parties and gifts.
6: Not Asking for Help:
The most common accounting mistake tradespeople make is not asking for help. We know staying on top of your accounts and admin when trying to run a business can be stressful. But it can also be daunting to reach out for support. It doesn’t have to be that way when your bookkeeper speaks your language.
The Solution: Tradermate! We offer jargon-free support and a wide range of bookkeeping and accounting-related services, including CAT, CIS, Payroll, and other related support. Contact us to find out more.