We are now well into the new tax year and if you have a new business, or your bookkeeping system leaves a little to be required – it’s time to get it into shape! Leave it too long and the mountain of receipts just keeps growing!
If you have set up a new sole trader business this tax year – there are couple of things you must do straight away:
- Register with HMRC – you can click here to do so. This tells HMRC you are self-employed and means they will ask you to complete a tax return. You need to do this within 3 months of starting your business.
- Set up a separate bank account. This can just be another current account but it’s really important to keep your business income and costs separate from your personal money. You might want to set up another account as well where you can put money aside for your tax bill.
- Buy a couple of folders (and keep the receipt!)
What Records do I need to keep?
You need to keep records of your sales and costs. You won’t need to send these to HMRC but you need to keep them so you can work out your profit or loss for your tax return, and show them to HMRC if asked.
There are many ways you can keep your records, ranging from pen and paper to accounting software and the key is to choose one that suits you. If you don’t get it – you aren’t going to keep it up to date! The way we report our figures to HMRC will be changing – Making Tax Digital is on hold for now, but it is expected to be back on the agenda when the Government has sorted itself out, so before long we will need to be keeping digital records.
There are some great Apps out there now for scanning receipts and recording your data for you, so if you are just starting up your business, I would go straight for the digital option. Take a photo of your receipt when you get it, upload it, put it into the relevant category, and then bin it – job done! You will save far more than the monthly subscription fee in regained time.
Even if you just go for an App to record your expenses (Receiptbank is the one I use) then the rest of your record keeping is pretty straightforward.
For your Sales:
Keep a copy of every invoice that you send out (paper or electronic).
Keep a record on a spreadsheet of all invoices raised – noting the date it was issued, the number (keep these sequential), who it was to and the amount. Have a final column where you note the date the invoice is paid – perhaps in a different colour so it stands out! You can then easily see who owes you money and how long the invoice has been outstanding – so you can get chasing!
It’s really important to keep track of what you are spending. Try to pay for everything related to your business directly from your business bank account – this will make recording expenses so much easier. Some things you will have to pay in cash (parking etc) but wherever possible use your business account debit card. Even in Tesco if you are buying bits of stationery, pay for this separately to your weekly shop, or you will probably forget you bought it and you won’t claim it against the business.
If you haven’t gone for the App then keep a spreadsheet of your expenses. It’s a good idea to have one spreadsheet or tab for all costs that you have paid for from the business account and another one for cash payments. Your spreadsheet should note the date, the supplier name and the total. It should then break down the amount into categories so you can keep track of what you are spending – the categories can be whatever you like and what will be useful for you – but might include post, stationery, travel, parking, website, networking, subscriptions etc. Don’t forget to include a category for money that you have taken out of the business for yourself, as you will need to “pay” yourself at some point!
Keep the actual receipts for your expenditure in a folder if you haven’t zapped them on your phone – filing them by month is a good idea and for the super organised, number them and cross reference them to your expenses summary spreadsheet, so when your accountant queries something you can find the receipt quickly!
If you use your car for business then the simplest way to charge the business for this is to recharge the mileage. The business can pay you 45p per business mile – so you need to keep a record of the business mileage that you do. You might chose to keep a notebook/diary in the car to keep a log, or to keep a spreadsheet but somewhere you need to keep a record of the business miles you have done. Every month, or quarter, total this up and repay the amount due to you from the business account – not forgetting to note it on your expenses summary!
Keep a record of your mobile phone bill and internet costs as you can also reclaim a percentage of these from your business.
Print out your statement when you get it and file it in your folder. Check the items on your bank statement to the income and costs on your summary and make sure you have everything recorded.
When you are paid by a client, it’s a good idea to put a percentage of this aside into your “tax” bank account to save for you tax bill – the amount you need to put aside will vary depending on your personal circumstance, but between 20 and 30% as a guide.
If you follow these basic steps then you are well on the way to having a good bookkeeping system. Try to keep this up to date – there is nothing worse than sitting down to catch up the last 6 months!
Using your phone to zap your receipts is strangely satisfying (and the kids love it!) so I would really recommend going down the digital route to keep your records – contact me for prices.
If you are happier sticking to spreadsheets for now then do contact me by email for a template that can be used.