All too often business owners find themselves in an accounting mess because they have mixed up their business and personal costs. I’d always advise keeping your business costs and personal expenditure completely separate from the outset – start as you mean to go on.
Business Bank account and Debit Card
It much easier to get your business finances organised if you have a business bank account with a debit card that can be used for ad hoc costs. Your bookkeeping will be quicker, easier and you might be able to reduce your accountant’s cost if you only put business transactions through the business account.
Putting your private costs through the bank account of a limited company can have serious tax problems and even for a sole trader / partnership it seems pointless to pay your bookkeeper or accountant to work their way through your private transactions; you may not want them to see what you spend your own money on!
Don’t be tempted to pay for non-business things out of the business just because that is where the money is and it is convenient.
Expenses paid privately
If you do pay for business expenses out of your own pocket then, of course, you are entitled to reclaim these costs back from your business and reimburse the money to yourself, just like making an expenses claim if you were an employee. Using the business bank account, a debit card or having a petty cash tin with a float drawn from the business bank account should avoid this as much as possible.
If you do have to claim funds back from your business by way of an expenses claim don’t forget to attach supporting receipts (and a mileage log if you are claiming business miles) and file it safely in your accounting paper work. Try to do it at least once every month so you don’t forget costs, lose receipts and miss out on claiming a legitimate expense against tax.
Taking money out of the business for private use
As a business owner you will of course need to take money for yourself and your living expenses.
Money taken from the business should be recorded in the accounts; the amounts are known as drawings for a sole trader or partnership, and normally a salary and / or dividends are taken by the owner of a limited company.
