Do you prepare your own tax returns? Are you a do-it-yourself (DIY) bookkeeper?
To save money, you may have chosen to prepare your own financial statements and tax returns. But in doing so, it could cost you more than you imagined.
The Inland Revenue Department (IRD) pays much closer attention to anyone who has prepared their own tax returns. Its investigators and officers know that errors in tax returns are more likely to be made by the general public.
As chartered accountants and tax agents, we regularly spend a lot of time dealing with IRD’s investigations. Clients contact us seeking our help when the IRD has contacted them to discuss their tax affairs.
While we are always willing to assist, much of our time could have been avoided or reduced if we had prepared the tax returns.
Reconciling GST and payroll returns, analysing entertainment expenses, and identifying drawings all take time when errors in bookkeeping have occurred.
The following are some of the more common issues we experience with DIY bookkeepers.
Limited Tax and Accounting Knowledge.
Tax legislation is complex and voluminous. As chartered accountants we have to stay abreast of changes to it. We are bound by our professional standards, which requires us to maintain a minimum number of additional hours training each year.
Understanding the intricacies in accounting standards and legislation is required to minimise errors when coding business transactions.
You may think you’re saving money by doing your own bookkeeping but errors can be costly. IRD frequently imposes penalties and interest on taxpayers for erroneous income tax, GST and payroll returns. And in some cases, it will instigate criminal proceedings.
Inadequate Knowledge of Employment and Business Legislation
Employment law is constantly changing and fraught with pitfalls. Employers have a duty of care to their employees, who have extensive rights.
Keeping up-to-date with employment legislation is essential. Maintaining extensive employment records, such as agreements, holiday pay, annual leave, etc is time-consuming.
But the risk of getting it wrong is even more concerning. IRD takes a very dim view of poor record keeping or anyone not complying.
Busy owners forget things. That’s a fact of life and is easy to understand why. However, important tax deadlines should not be on that list!
If you’re doing everything yourself, you risk missing tax due dates. Your hard earned cash can quickly be consumed by tax penalties and interest.
The countless unsociable hours you spend on your accounting could be better spent on growing your business and generating more income.
Inadequate Accounting Software Knowledge
If you know how to use accounting software effectively, it will definitely make bookkeeping tasks much easier and faster. We often see business owners tackle their own bookkeeping without really understanding how to to use accounting software. This can cause all sorts of problems.
Many small business owners subscribe or buy accounting software that is unsuitable for their needs. They often pay more than they need to. Many virtual accountants obtain discounts on software and are only too glad to pass on the discount.
Are You Prepared To Take The Risk?
Be prepared to accept the risk if you’re going to prepare your own accounts and tax return. Only you can weigh up the risk versus the benefits.
An experienced chartered accountant will be a valuable partner who can contribute to your success. They can help you achieve better results. Don’t wait to see them once a year to drop your tax work off.
Ask them to review your accounts regularly. Ask them for advice on how you can improve your business. Many chartered accountants are also virtual chief financial officers (virtual CFOs) With a fresh pair of eyes, they can offer an impartial perspective and use their financial expertise to offer appropriate advice.
Mark Gwilliam is Business Advisory Services Director at Business Advisory Accounting & Tax Services Limited in Auckland.