Self-employed persons should have a basic understanding of their bookkeeping needs even you are having an accountant who file your taxes every year to HMRC. Clear understanding of bookkeeping concepts will make you aware of what is going on in the books of accounts and it becomes easier for you to produce accurate books at the end of the tax year.
Use Of Bookkeeping Software
Now days, use of bookkeeping software is very necessary as it manages your bookkeeping system from start to end. Use of bookkeeping software will help you in remembering types of records you need to keep and also helps in developing a list of income & expenses in the software at the end of the tax year. Managing income & expenses in the software will helps in generating more detailed reports for your accountants and it will save time of your accountant in preparing your books & lowering your tax bill.
Managing receipts of every purchase is an important task to perform. You should organize the receipts of your every business purchase or for any activity you paid for while doing business. Missing of any receipts may cause errors in bookkeeping. For ex – Meal receipts for business lunches, dry cleaning receipts for your suits and hotel receipts for business stay.
Keep your receipts in an expandable file folder & organize them by their function so that you can easily classify them under different headings. For example – Meal & concert ticket receipts for entertaining clients will be classified under the entertainment tab.
You have to keep track of such things which you are doing for business purpose but cannot get receipt for the same. The most common type of such expense is Travel expense. If you are using your personal vehicle for your business, you are entitled to a tax write-off for each mile.
You can create expense forms, fill them in detail and sign the expense sheet, when the expense is completed. File your all forms in expandable file folder.
SEPARATE ACCOUNTSThere should be two separate bank accounts i.e. one for personal and one for business. If you will make a separate bank account for business purpose, it will become easier for you to divide personal expenses and business expenses.
With the help of a separate business account, you can easily track your business transactions separately from personal transactions. Keep a record of your business statement & account invoices every month and file them as backup to your receipts.
Claim Your Business ExpenseAs a self-employed person, you can claim number of business expenses from HMRC. It includes – Expenses you may not be able to claim includes the following –
Bookkeeping Mistakes A Self- Employed Person Should AvoidA self-employed person should avoid the following mistakes while doing bookkeeping –
- Leaving it until the last minute – Bookkeeping is a continuous process and it should not be left until the last minute as it may cause many problems. Delaying the bookkeeping will pile up your work and extreme hurry in filing of tax returns close to deadline may cause errors which leads to fines & penalties from HMRC.
- Mixing business spending with Personal spending – You should not mix your business spending with personal spending as it takes much of your time and money in the long run. It is worse situation, if you will ask your accountant to do the same on your behalf as you are paying them as per time spent. Keeping business transactions separate will helps you in minimizing errors. Right amount of income & cost will leads to paying right amount of tax.
- Paying for somebody unnecessarily – You should use your accountant well and keeps your books updated and in good state which free accountants to spend time on what they do best. Keeping proper records will give more time to accountants to think & advice you on other important matters.
- Fail to keep good record – Failing to keep good record means you don’t have your eyes on the health of your business. You should update record of your each & every income and expenses on daily basis whether it is small or big. For example – Buying a coffee for a client in the last minutes of meeting.
If you are claiming back your past business expenses, HMRC may ask you for evidences of your receipts. Therefore, it is necessary that you should even keep the track of small expenses. Maintaining the records will help you in avoiding any kind of disputes.
You should record, number your invoices and arrange them in a sequential order. Make a billing system to ensure that every client should be paid on time.
Now days, regardless of keeping records of income & expenses, many businesses are using cloud-based software which scan your receipts, input information about cash flow and even generate invoices.
- Paying cash – Try not to do any transactions in cash as paying through cash will not create proper evidence. If you will pay through card or an electronic transfer, bank will record the date of transaction, amount as well as the recipient’s name. It will also save you from inputting information into spreadsheet.
- Beware of distraction – Bookkeeping is a continuous process and it should be done without any distraction. If you are working from home, you may be distracted by your family or flat mates. Therefore, it is recommended that bookkeeping should be done at a silent place so that you can easily complete your work with no or fewer mistakes.
- Not reconciling your accounts each month – Not reconciling your account every month may lead to many errors in the future. It is essential to reconcile your accounting system with the financial accounts ensuring that your income & expenditure record should match with your financial statements. Reconciling your accounts monthly will help you in showing how your business is going on & whether any improvement is needed or not.
How DNS helps Self-Employed for Bookkeeping?
DNS Associates is one of the leading UK firm with more than 10 years of experience in advising self-employed persons about how to handle bookkeeping and what things a self-employed person have to take care of while doing bookkeeping.
For free consultation, you can call our DNS accountants at 03330602481 or e-mail us at firstname.lastname@example.org