Maintaining your own financial records – AKA doing your books – can seem daunting when you’re new to it. However, it’s an essential part of running your business and ignoring the accounts will lead to big problems later.
Start From Day One
As soon as you set up your business, start recording your all costs and sales you make. In fact, you may incur costs before you start up. These can still be deducted from your profits, which will reduce your tax liability.
Start recording everything from day one, keep up to date and make sure you know the dates your accounts, tax, VAT, PAYE, etc are due. Late payments and returns can incur heavy fines and penalties.
Get a system
Set up an accounting system from the start. This doesn’t have to be a sophisticated software package. In fact, you could start with a manual system, but it’s wiser to at least use a computer spread sheet or easy accounting system.
If you intend to use an accountant, agree the system with them before you start your business. You will be surprised how much this can save on fees if you use one with which your accountant is familiar or recommends. You may even find that some of them offer a free, ready-made spread sheet.
Go on a free HMRC workshop
Yes, HMRC does give some thing away for free – and the workshops are very good.
There should be a free workshop in your area on:
- employer online filing and running a payroll
- becoming self-employed and self assessment for self-employed people
- Construction Industry Scheme
- setting up a limited company
- introduction to VAT
- introduction to international trade
HMRC also provides a free payroll tool kit that has everything you need to meet all you employer-filing responsibilities.
Budget for tax
Although you may have made a profit (income minus costs), not all of this money is yours.
Obviously, you’ll have to pay some to the taxman. Make sure you budget for this as you go, so you won’t get any great shocks at the end of the year. Open a deposit or business savings account and put money aside for your tax. Saving 25-30 per cent of all income you receive is likely to mean you’ll easily be able to pay your tax bill.
Claim for all business expenses
The general rule is, you can claim for any cost incurred ‘wholly and exclusively for business’.
Remember to keep all receipts for your business purchases – even the smallest costs, such as stamps, stationery, bus and train tickets etc.
Record all your business trips and claim for these – even trip to the local post office in your car to send a business letter or parcel. In fact, you can claim for cycling to the post office. The allowed rate for cycling is 20p per mile – so get on your bike instead of using your car.
If you use your home as an office, you can claim for a proportion of your domestic bills – including lighting, heating, Internet and telephone charges, even a percentage of your rent or proportion of your mortgage interest.
Whilst there is no exhaustive list available of what you can claim, common sense should prevail when applying the ‘wholly and exclusively’ rule. If in doubt, speak to an accountant.