I have just finished getting my accounts up to date so that it’s not such a ghastly cope at the end of the financial year. My accounts are pretty simple; I have no offshore investments, no racehorses, no property, no shares, no nuffink that represents the need for an accountant or that will get Her Majesty’s Revenue and Customs remotely moist.
Basic book-keeping is not difficult for day to day income and expenditure. The most important thing is that you have a structure that is easy for you to follow and you mustn’t ignore things or be sloppy about your record keeping. HMRC will give you loads of help if you need it but they will also fine you to kingdom come if you don’t submit accurate records or pay your tax on time. So don’t bury your head in the sand – it’s just not worth it. Have files and keep your receipts.
I have loads of receipts and invoices and this is what I do with them.
I have typed up a form which reflects the self-employment tax codes and broken it down into the different types of expenses. The ‘Class’ and ‘Mark’ codes listed are pertinent to my accounts software which is Money Manager. In my case, the expenses categories are:
Cost of Sales: stock, visuals, photographic etc
General Admin: stationery, postage, telephones, misc office expenditure, research materials, newspapers, office costs ( % of heat, light, rent etc).
Motor Expenses: petrol, parking & tolls, maintenance
Capital Allowances: equipment, furniture
Travel & Subsistence: subsistence, public transport, accommodation
Advertising/Promotions: Pr, Marketing, Advertising, client entertaining
Receipts:
I would advise you to keep all your receipts in a small, sturdy box and put everything in there to start with, even if you’re not sure whether it’s claimable.
Diary:
Keep a careful diary log of everything you do. This may sound obvious but when it comes to justifying your receipts, you need to know that, for example, you visited this client on the 24th and that’s why you have a legitimate petrol receipt for the same day.
Organising the receipts:
Sit down at a large, clear table where you can lay your stuff out.
Get 12 x A5 envelopes and label them with months and year of your financial year. Ie April 2011, May 2011 etc.
Also have to hand a calculator, sticky notes, a pen, paperclips and a stapler
Go through the receipts one by one and put them in 12 monthly piles starting in order from the first month of your financial year to the last (probably April to March) .
Now put each pile into its relevant marked envelope, so you don’t lose any or get them mixed up.
Now take out April’s receipts and sort them into piles as per the categories marked on your Expenses Sheet eg. all stationery together, all postage together etc.
Now check things like petrol off against your diary entries to make sure they match. Discard any receipts that would lead the HMRC to think you’re taking the piss (unless you’ve been told otherwise).
Now add up all the petrol receipts, write down the amount on a sticky note with ‘petrol’ written on it plus the tax form code eg. 3.54, paperclip them all together, affix the sticky note to the top and write down the total on your expenses sheet. Carry this on for all the other expense categories.
When you have finished, fold the receipts into the relevant expense sheet page and put them in their envelope ready for when you actually enter them on your system. This way, you can always access your monthly expenditure even if you haven’t actually entered it into your accounts system yet (be it a large, leather-bound ledger smelling faintly of pipe smoke or an up to the minute pc package).
By using codes which reflect the Self Assessment Tax form, it should also then generate all the accurate totals you will need for the form without you having to tot them up yourself. A good accounts package will then also give you Code Totals so that you can see at a glance how much you’re spending on petrol or stationery or whether your expenditure is too high in relation to your income and what your Profit/Loss is for any month and ultimately for the whole year.
If you have an accountant, this makes it much easier for them and a bit cheaper for you.
Calculating how much to charge for a home office:
If you have an office in your house, add up how many rooms you have in your whole house. Let’s assume you have 8 rooms and a £50 a month gas bill. Divide £50 by 8 which £6.25. Therefore include £6.25 for the gas to heat your office. Do this again for Council Tax, rent and electricity.
If you are in any doubt about anything, ring the HMRC for guidance or go onto the website http://www.hmrc.gov.uk/selfemployed
It’s in their interest to help you get it right. They also run some super courses for self-employed people and these can be accessed via your local tax office.
Invoices In and Out
These will be entered separately because you will want to give them individual reference numbers in your accounts. Simply keep two files in different colours for each type of invoice. If you have a regular flow of these, have a table at the front on which you can list the invoices as they come in, noting the date received/sent and later the date paid/monies received. This makes it much easier to keep track of money owed in either direction and will show up any glaring omissions at a glance.
Extremely informative and helpful post, which has come at such an opportune moment for us. Many thanks for your clear advice.
OMG. – I can sense a homework feeling coming on !
Your wonderful practicality and common sense shine through but major stumbling block for me would be the ‘small sturdy box’ as I know this would be put somewhere so safe it would cease to exist in this universe, also we don’t own a table so large empty flat space would = sitting room floor . Beagles would soon put a stop to that idea! Barclays pin machine never recovered from being delivered whilst I was out.
It’s no good, will just have to remain a lady of leisure.
note to self – never try to read wordy emails late in evening when eyes are weary – was intrigued initially that you could claim for trolls.
Though It would be interesting to see HMRC reaction to that one.
The table doesn’t need to be THAT big, Flat Stanley – a space 3ft x 3ft would be more than adequate.
Regarding the trolls, it depends very much on whether you have them solely for personal use or whether their presence in your office has a legitimate business component.
We have all worked in offices where at least one of the female clerks has a row of amusing small toys on top of her monitor, at least one of which is always a troll with flourescent hair. In this capacity, however, the troll has no business purpose whatsoever, other than as a clear indicator as to which members of staff should be executed if life was fair.
My troll is in charge of stapler maintenance, treasury tags and beverages and, as such, constitutes a ‘government sponsored trainee’ and thereby qualifies me for an additional tax allowance for offering training to cultural minorities – to whit mythical-bridge dwelling creatures.
I hope that helps.
I rang the benefits ppl abt five years ago and they tell me I cannot be entitled to any benefits such as sick pay (which I have never claimed) since I have been self employed since early 1983 and that all i will be receiving will be the state pension at sixty something. Their reason being some garbled rubbish about ‘out of the system too long’ ….. ehh!!??
My NI stamps/ contributions all seem in order, I had them double check.
This is dreadful should I be ill God forbid, reactions and advice please.
Also, contrary to oft bandied advice avoid the ‘Simplex D’ accounting ledger, its hellish.
Wow, thanks, just what I needed right now, I have been struggling keeping on top of both mine and my partners accounts, this has just given me the motivation to get on with it…
Do trolls have E.U. membership ? Or do they require work permits ?
Re. bullying in work place etc – do they need monitoring when working near billy goats ?
Flat Stanley: No. Yes and Yes. There is a register.
Richard: I will look into this and do a separate article as soon as I have an intelligent response. I am doing some relevant work to this on Friday so, I’ll get it done as soon as possible.
Many thanks !! ….. I am utterly baffled….. a bit ‘lost’ actually.
Richard: Don’t be lost, lovey!
You asked about what happens if you’re ill when you’re self-employed and I am going to make some enquiries as I’m sure this is something which worries every self-employed person. I had stopped talking about trolls…
whoops, I shld have clarified, its the benefits thing that I am lost on, theres no-one I can ask and being told after three decades of never claiming that I’ll not get any sick pay or any benefits other than the pension is utterly baffling to me. Power to your elbow Mrs WH !!
Yuk, yuk and double yuk, remove this post at once, it’s far to sensible and organised for one such as I. Now where did I put that bucket of sand to bury my head in?
Kyla, Kyla, Kyla! It doesn’t take long, it really doesn’t. Saying that, you do have to have some receipts and invoices in the shoebox to work with in the first place………
Never put your head in a bucket of sand if you also own a cat !