Maintaining your books
As stated in the introduction, managing your finances should be straightforward, and you do have some responsibilities to the Inland Revenue which means you need to keep "Books". These are simply a record of all your transactions, both what you receive and what you pay out for. This section covers these areas in some detail, and much of it might be obvious, but not to everyone, eg it tells you to write details of a transaction on a cheque stub, but it is so easy to forget to do this and then spend time afterwards trying to remember what you wrote the cheque for in the first place..!!
Whatever type of business you run, whether it is a limited company, partnership or you are self-employed, when completing your tax return you need to consider which business expenses are allowable and need to be reported. The following table is intended as a guide to helping you write up your books, and also as a point of reference to determine what types of expense are tax deductible. If you unsure, just note in your cash book and this can be reveiwed with your accountant.
Records should be retained for 5 years.
The Inland Revenue have the right to impose penalties for inadequate records.
1. Business Bank Account
We recommend trainers maintain a separate bank account.- Keep all bank statements
- Write details of transaction on cheque stubs and paying-in slips and keep these.
2. Cash Book
This is a record of transactions reflected in the business bank account
- Record all client fees.
- Record details of all bankings.
- Record all expenses paid out of business bank account.
- Record all amounts taken out of business bank account for personal use ("Drawings").
- Record any personal funds paid into business bank account.
3. Petty Cash Book
This is a record of cash expenses.
- Record any cash paid into petty cash float.
- Record all cash expenses (eg taxi/train fares, stationery.
4. Invoices
These should be kept in separate file dividers month by month.
- Keep all sales invoices raised.
- Keep invoices for all expenses except where amounts are very small (eg pens, coffee etc). Keep petty cash invoices separate from cash book invoices.
5. Other
- Keep any other records eg credit card statements, building society books, which relate to the business
- Keep details of any assets used for both business and private purposes eg record business/private mileage in your car so running expenses can be split. If you work from your home keep sufficient records to confirm which expenditure relates to business and which to private use.
WRITING UP YOUR BOOKS
Income |
Include all monies you receive from services performed. |
Exclude other income such as bank interest or dividends |
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Category |
Deductible |
Non-deductible |
Expenses |
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Basic rule |
To be deductible expenses must be incurred wholly and exclusively for the purposes of the business. For example, trainers, shirts, shorts used specifically for client work may be claimed. |
Personal or domestic expenses eg food, drink, general clothing etc are non-deductible. |
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Drawings ie money you take out of the business |
All none deductible |
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Interest payable |
Deductible if you have borrowed money to use in your business |
Interest on home mortgage usually non-deductible. Could try for partial deduction (see . use of house as office. below) but this may create capital gains exposure. |
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Materials used in you business |
Deductible |
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Travel & Subsistence |
Deductible if for business purposes, eg train and taxi fares. . Subsistence. includes hotel bills, meals, newspaper, laundry etc while away on business. |
Travel between home and work non-deductible. Meals, newspapers etc at home are non-deductible even if working from home. |
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Motor Expenses |
Motoring costs such as road fund licence, insurance, petrol, repairs etc are deductible if they relate to the business. Keep a record of business and private mileage. We will then be able to split the costs to determine the business proportion. |
Motoring costs relating to private use are non-deductible. |
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Rent/rates of business premises |
Deductible |
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Heat and light of business premises |
Deductible |
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Telephone charges |
Deductible if for business purposes |
Private telephone charges are non-deductible |
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Advertising and publicity |
Deductible |
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Professional fees eg, design, consultants, accountancy |
Deductible |
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Stationery and postage |
Deductible |
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Repairs and maintenance |
Deductible |
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Entertainment |
Staff Xmas party deductible! |
Business entertainment is non-deductible. Staff entertainment is allowable but, except for Xmas party, creates a tax liability for staff so avoid. |
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Equipment, eg computer, weights, equipment |
Deductible but only a proportion year on year. |
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Other Notes |
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Use of house as office |
If you work from home you can claim a percentage of household overheads such as electricity, gas, insurance etc. If you use one room exclusively as an office, take that room divided by total number of rooms in house (excl kitchen and bathroom) to get appropriate proportion. However, this method sometimes leads to a capital gain exposure so we advise clients use an estimate over whole house. |
Note at end of year in cash book. |
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Bad debts |
Deductible |
Note at end of year in cash book. |
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Small cash items eg taxis, pens, paper, professional magazines |
Deductible if for business purposes |
These should be written up in a separate . Petty Cash Book. . |
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References |
Record invoice number against each sale. Record cheque no against each payment by cheque. |
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