My Professional Advice
Here are a few simple steps you should take as a small business owner in the UK to help make sure your accounts are right.
When I worked in a small accountancy firm, I worked on accounts for a number of small self-employed ventures, including artists, taxi drivers, electricians, performers and writers. It was amazing to think if these clients had taken a few simple steps themselves, they would have saved money. Their accountancy fees would have been lower because it would have taken us less time to do their accounts, and in many cases, they would have paid less tax too!
Don't turn up with a random jumbled bundle of invoices and expenses, with amounts that bear no relation to what is going in and out according to your bank statement. Instead, follow these eight simple tips:
- Separate Your Personal and Business Funds
- Keep Track of Ingoings and Outgoings
- Issue Proper Numbered Invoices
- Record Cash Income and Expenses
- Organise Your Receipts
- Include All of Your Expenses
- Don't Leave Sorting Your Tax to the Last Minute
- Seek Professional Advice for Complex Matters
1. Separate Your Personal and Business Funds
Open a separate account for your business. If you are a sole trader, there is no legal requirement to do this, but it makes keeping track of your business expenses and income much easier.
Before signing up for a new account:
- Shop around for the best deals.
- If your business is small scale and you are a sole trader, instead of opening a specific business account, you can open a second standard personal current account. Most business bank accounts have monthly fees and charges for each transaction, but personal current accounts are free.
2. Keep Track of Ingoings and Outgoings
You need to keep track of what money you have coming in and what you are spending it on.
There are a number of different ways to do this. If you only have one or two transactions a month, it is probably good enough just to make a simple list of them in whatever format you like best.
However, if you have more than this, setting up a spreadsheet like the one in the video below is a good option. If spreadsheets scare you, you can also buy an accounts book and record your accounts on paper, the old-fashioned way.
You can also purchase specialised accountancy software, but if you are a small business with only a handful of transactions, this probably won't be worth it.
Note: If you are using an accountant, it is best to ask them what they recommend in advance, as different firms will have different preferences.
3. Issue a Proper Numbered Invoice
If you sell a service or a product to a customer, issue an appropriate invoice and keep a copy.
Each invoice should have a unique reference. For example, you could number your invoices 100, 101, or 102, or you could use a combination of letters and numbers. For example, if you had two main clients, Mr Jones and Mrs Smith, you could use JO1, JO2 for Mr Jones, and then for Mrs Smith, you could use SM1, SM2 and SM3. It is up to you to decide what works for you.
You can make your invoice using a word processor, or handwrite it if you prefer, as long as you make a copy.
For details of exact requirements for invoices, see the government's advice on issuing invoices.
As well as helping with your tax return, this will also help you if you have issues with slow-to-pay customers, as you will have proper evidence of what you sold them.
4. Record Cash Income and Expenses
It's particularly easy to lose track of cash income and expenditure because you don't have the backup of records on your bank statement. Make sure you record any cash you receive or spend in your accounts book or spreadsheet and also which invoice the cash relates to.
An easy way to help keep track is to pay any cash you receive straight into your bank account.
5. Organise Your Receipts
Keep a copy of all your receipts for your expenses in an organised way.
Don't file receipts in the back pocket of your jeans!
Keep receipts together in order. Some good ways to do this are:
- If you have a scanner, then scan copies of each receipt and organise them by month.
- If you have small receipts, staple them to pieces of A4 paper and file or scan these to stop little bits of paper from going missing or falling out.
- If it is not clear what you bought from the receipt or what business purpose it has, write a note on the receipt.
6. Include All of Your Expenses
Try to include all of your business expenses. Advice on what you can claim as expenses is available on the UK government website.
If you work from home, you can include a portion of the costs of running your home. If this applies, your accountant may need to know how much your Council Tax, gas and electricity bills, details of your mortgage interest or rent, and your internet and phone bills are.
If you use your own phone to make business and personal calls, you can also include the business proportion. You need to find some way of keeping track of the proportion of business calls versus personal calls you make.
7. Don't Leave It to the Last Minute, Especially Not in January
There is nothing worse than a mad rush to get your accounts done. If your accountant gives you a deadline to give them information, stick to it.
The main deadline for submitting tax returns each year is 31 January. All accountants for small businesses will be very busy at this time. If you hand your books over to your accountant in January, they may either:
- refuse to do your accounts on time, meaning you pay a late penalty to HMRC, or
- charge you more for having to process the accounts in a rush.
It is tempting to procrastinate and put accounts off, but the sooner they are sorted, the sooner you can concentrate on the other more enjoyable bits of your business and earning money.
8. Seek Professional Advice If You Are Not Sure
Tax is complicated, and it is hard to get it right yourself. If you are not sure about something, it is worth seeking the advice of a professionally qualified accountant.
In the United Kingdom, anyone can call themselves an accountant, but you can check if someone has qualifications by checking whether they are a chartered accountant, which means they are members of the relevant UK Professional bodies.
A good accountant will save you money, worry and stress. However, you will be more popular with an accountant if you follow the advice above and stay organised, or at least try your best to.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.