Summary

In this episode we will discuss everything to do with your accounting books & records, this includes your purchase receipts and other information you should keep. Getting your admin right at the start will save you headaches down the line. Enjoy.

Natasha 00:24

Hello and welcome to Tax Able. Today’s episode is called Death by Paperwork and that’s because we are going to discuss everything to do with your accounting books and records. We’re going to look at any other information you should keep and we will cover Making Tax Digital. You may be thinking, oh, this episode does not sound interesting. Should I log in and listen? But if you get your admin right at the beginning, then it will cause you less stress down the line.

Natasha 00:52

Whatever records you keep, it makes sense to organize them and keep them in an orderly fashion.This will not only help you, it will also help your advisor. If they are organized and easy to follow, then your advisor will need to spend less time so their fee should be lower and things are less likely to be missed. If you are starting a business, help keep it on the right track by keeping good records from the beginning and you’ll find it easier to keep your affairs up to date going forward.

Natasha 01:22

But what do you need to keep? Well, you should keep any records or documents that you’ve received or prepared. Sometimes you need to refer to records that are already several years old. For example, if you decide to sell any shares or a property, the sort of information that you will need will be the price you paid and any associated costs. You don’t want to overpay on your tax bill because you didn’t keep this simple information.

Natasha 01:46

Now, if HMRC ever raised an inquiry and for any reason you’re unable to show the underlying records that you use to complete a return, you’re likely to get a hefty penalty. You may not have a lot of space. So how long do you need to keep this paperwork? Well the rules are, if you’re self-employed or in a partnership, you need to keep it for at least five years and the five year period runs from the 31 January following the tax year of the return that you’ve submitted. If you do submit your return late, then you’ll need to keep the information for slightly longer to make sure you meet that five year period.

Natasha 02:20

Company’s, the rule is slightly different as you need to keep your records for six years and the six year period runs from the end of your accounting period. Again, if you submit late, you need to keep the information for slightly longer.

Natasha 02:32

Let’s move on to how you can keep your accounting records we used to always keep paper records, but we’re now in a paperless age, so most opt for an online accounting software package such as Xero, Sage or QuickBooks. Personally, I’m a fan of Zero and that’s mainly because I just use it so frequently. The benefit of this system is it can be linked directly to your bank account. This means you can reconcile it, and that means match or record any receipts or payments with ease. You can also upload copies of your receipts as evidence and prepare and send invoices all in one place. With an online software package, your accountant can have access to the data anytime and you can easily make changes on your phone, which is useful if you are always on the move.

Natasha 03:20

So the benefits of keeping an online package are it saves you a lot of time. The information is all in one place. Your advisor can easily access data and supporting documents. This means that we don’t have to ask you as many questions or ask you to scan over copies of invoices. You’re less likely to make mistakes or errors, and the most important one is you have access to live data. This means at any point you can run a set of management accounts and this is extremely useful if you’re looking to pitch or forecast for your business. You can check your cash flow, who owes you money and who you owe money to. If you’re a company, you can check your reserves before you pay a dividend.

Natasha 04:01

In the episode called It’s My Money, I’ll Spend If I Want to we discussed in detail about illegal dividends and why these are bad and the fact that you need to check your reserves before you pay a dividend, as it will prevent issues down the line.

Natasha 04:14

Here’s a tip for you. If you are on the go, or if you have employees that aren’t very good at giving you the necessary paperwork, then you should look into special applications that you can download on your phone. There was one we used to always use called Receipt Bank, but I think they’ve changed their name now and there are other applications available. The benefits of these that they allow you to electronically capture and store your receipt. These will be available not only on your phone, but any connected device, so there’s no need to keep a shoe box full of receipts.

Natasha 04:45

So say you’re out and about. You get a receipt. For example, you bought a coffee, you then take a picture of the receipt on the app on your phone and depending on its compatibility, it can then log that receipt against the purchase in your account and then you can get rid of that receipt forever.

Natasha 05:03

Now this leads on very nicely to the area that is most frequently missed by business owners, and that is business expenses that you paid for personally. Now, people may overlook these because either they are too small and they don’t think it deserves their time and effort. They may not know, but these are items that will add up year on year and you will be overpaying tax if you overlook these.

Natasha 05:25

Now the first category we’re going to look at is business mileage. HMRC has standard flat rates for which you can claim, and this rate includes fuel, insurance and wear and tear of your vehicle. For example, if you have a petrol car, the rate is £0.45 for the first 10,000 miles and then £0.25 thereafter. If your employer pays you anything above these £0.45 and £0.25 rates, then the amount is classed as a Benefit in Kind (BiK). You will have to pay tax on that amount and it will be reported in a P11D. If your employer pays you below the £0.45 and £0.25 rate, then you can make a personal claim to HMRC for the difference.

Natasha 06:09

The second category is any parking, hotels or taxis. Thirdly, client entertaining and by that we mean any meals or days that you’ve taken your clients out. Say you’ve met a client for a coffee. It includes all of those items. Fourthly, we have subsistence, and subsistence means any coffees or lunches while you’re out for a business purpose. These do add up, so please do not overlook them.

Natasha 06:37

The last category we’ll look at is working overseas. So if your work does take you abroad, you can claim the cost of the flights, the hotels, the food, etc. and everything associated with that trip, even if you spend a small amount of time seeing the sites at the end of your trip. However, you cannot claim the cost of say, a week or a two week holiday just because you had one small meeting one morning. Unfortunately, that doesn’t work. You can then only claim a cost directly related to that meeting.

Natasha 07:09

There are certain records you need to keep in general and these need to be kept whether you pay them personally and then claim them back or if the company paid for them directly. Now the first big one we’ve already discussed is business mileage. If you do claim business mileage, you need to keep something called a mileage log. Now the sort of information you need to keep is the date, the mileage of the trip, the destination, the travel purpose and any business contacts you visited. This is the evidence that the trip was for a business purpose and not a personal purpose.

Natasha 07:44

The next category we’ll look at is entertaining, if HMRC do raise an enquiry, they will then seek to see whether any of those meeting or events that have been claimed were actually for a private purpose. For entertaining, you do not receive any tax relief, but if the HMRC do deem that they were for a private purpose, then those amounts will be treated as salary and you will be taxed on those amounts. I recommend keeping a diary either digitally or physically and you should record who you met with, the reason for the meeting, where you went, and any other information you think may be of use to show it was a business meeting.

Natasha 08:22

If HMRC do raise an enquiry, then you can provide extracts from your dairy’s evidence. That may sound like a lot of information to keep, but if you start now and do it ongoing basis, it will become second nature soon enough.

Natasha 08:36

Next we’re going to look at VAT and as always, VAT is its own beast. Technically, you cannot reclaim VAT on any purchases if you do not have a VAT receipt, but you do not always get given a VAT receipt when you make a purchase, so you may have to ask specifically for one.

Natasha 08:56

And the final thing we’re going to look at is something called Making Tax Digital. You may or may not be aware and Making Tax Digital is where you report your information digitally to HMRC and the aim of this is to reduce errors. Ideally, HMRC want the information to be submitted directly from your accounting records, i.e. your online software package. Currently, MTD is only in place for VAT and for the current tax year we’re in. Anyone registered with taxable turnover over £85,000 has to report their returns digitally. But from April this year, all that registered businesses will have to report their returns in this way. So you either need to obtain compliance software or get something called bridging software and this may incur additional costs not only for the software but also your adviser’s time. So please make sure you look into this as soon as possible.

Natasha 09:53

The intention is for MTD to move into Income Tax and Corporation Tax, which will mean more frequent reporting, perhaps even on a quarterly basis. So be prepared for this as it is in the pipeline. If you aren’t using an online accounting system, you will struggle with MTD in the future, so I recommend you make a switch as soon as possible.

Natasha 10:15

If you did enjoy today’s episode, please make sure you click subscribe to listen to the episodes as soon as they’re released. We have now come to the end of the episode and the points you should take away from today are make sure you keep organized accounting records. If you can opt for an online accounting software package, it will save you time and effort in the future. Don’t miss out on claiming business expenses you paid for personally and MTD will apply to all VAT registered businesses from April this year.

*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please visit my disclaimers page. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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