If you are self-employed or a sole trader it is important that you keep a record of all your business income and expenses in order that you can complete your annual tax return. You also need to keep a record of other income you receive i.e. bank interest, dividends etc.
Being self-employed there are 2 methods you can use to account for your income and expenses:
Traditional Accounting Method
Accrual accounting method recognises income and expenses as they are earned or incurred and not when the cash is received or paid.
Issues with this method include that it isn’t necessarily the simplest option as you need to account for prepayments and accruals at the year end. It can also mean that in your annual tax return you are paying tax on items that hadn’t been paid by your customers in the relevant tax year. Given the choice it can be better for a profitable business to use the other cash accounting method below as this can help your cashflow.
Cash Accounting Method
Provided in the Tax Year 2014/2015 your annual turnover is £81,000 or lower then this may be your best solution. You only account for cash received in the tax year and expenses that have been paid in the year. Provided all receipts and expenses are paid through your business bank account then you simply have to ensure your bank statements are accurately reflected in your tax return.
The website gov.uk has useful information regarding which expenses are allowable to be deducted in calculating your taxable profit for the year. It also covers what capital allowances you can claim if you buy a van or a car (this can vary depending on your accounting method), what to do if any expense is part personal use and also the option of simplified expense rates for business cost for vehicles, working from home and living in your work premises. Using the simplified method you need to keep a record of the business mileage travelled, hours worked from home and the number of people living in your business premises.
Umbrella can help you decide which option is best for you.
Further information on self-employed expenses is available at:
HMRC have also produced a useful guide detailing types of records to keep, how long to keep them (normally 22 months from tax return deadline) and what to do if you are not given a receipt for an expense item.
Umbrella Accountants can help self-employed with their annual tax return. We will help ensure all allowable tax deductions are claimed and hence help you maximise your net income.
Please call Umbrella on 0800 121 6513
Self-Employed clients can include Plumbers, Electricians, Carpenters, Builders, Painters, Cleaners, Window Cleaners, Drivers/Deliveries, House or Pet Sitters