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This article was provided by inniAccounts. inniAccounts are Queen’s-Award winning accountants.
Do you remember exactly what you had for lunch last Tuesday or how many hours you spent working on that one project? All limited companies need to maintain complete and accurate records of their business activities. But when you’re building your business, it’s easy to forget the little details.
Very few people thrive in chaos, when you’re a busy contractor it’s easy to amass piles of receipts, invoices and scribbled notes for your timesheet with the view of getting around to sorting it later. You don’t want to spend all your time organising, record keeping and filing but leaving it all to pile up only leads to hardship in the end. That’s why small, short bursts of focused effort on admin is the best way to keep on track. Effectively keeping your records will help you stay on top of your business finances and the overall health of your company.
In this article, we’ll take a look at what you need to be tracking and provide some handy record keeping and day-to-day management tips to help you not only remain compliant, but save time and boost your productivity.
What do I need to track?
ll limited companies whether trading or not must keep accounting records, normally for at least six years. As a business, you need to ensure you have an auditable trail for anything that is related to what HMRC is likely to require records for. This covers income and Corporation tax as well as VAT returns and IR35-related information. It can sound complicated, but simple tracking can ensure you have all the information you may need at your fingertips.
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Records are essential to support tax returns, their calculations and year end accounts preparation. Usually a business will retain, a sales ledger (a record of the money you are owed), a purchase ledger (a record of the money you owe), a cash book (bank transactions, expense receipts, personal and tax payments), a petty cash book (for any cash that you draw from your company bank accounts), fixed asset registers (such as office equipment, patents and trademarks) and a mileage log of all business journeys. Many accountancy services, now offer integrated software that allows you to keep these records seamlessly in one place online.
Approximately 80% of limited companies fail due to cash flow issues. Keeping robust records helps you to ensure that you have enough money to pay the bills and remain in business. You need to ensure there is adequate cash flow or investment to satisfy your company’s outgoings. Keeping track of expenses and more importantly, future liabilities will ensure that you retain enough cash within the business to stay in business.
Day to day tracking
Record keeping should be quick and easy and it should deliver all the information you need to file VAT returns, pay yourself a salary and any business expenses incurred and bill clients.
The key areas that you need to track day to day are:
|
Items to record |
Auditable proof |
|---|---|
| Your time | Invoices and timesheets ideally with narrative explaining tasks, corresponding contracts |
| Business expenses | VAT receipts, delivery notes |
| Journeys | Business mileage |
Your time
Tracking your time via a timesheet allows you to record hours against a specific contract or task. This information is integral for later invoicing your clients either by the hour or day for projects. It’s also an effective business method for measuring your productivity and providing accurate estimates for future projects. You can also use your timesheets to calculate your pay if you prefer to flex your salary to reflect the amount of work you’ve completed that month.
Your timesheets need to be available to input the information into your invoices for clients/agents. Having some narrative regarding the tasks can help with ensuring speedy invoice payment as well as providing supporting evidence should HMRC query the IR35 status of one of your contracts.
Expenses
Efficiently recording your expenses every day will help keep your business finances healthy; allowing you to always know how much cash is available in your company and to minimise your tax liabilities.
Business expenses must be recorded correctly and the receipts as well as any delivery/order documentation kept as an auditable record of the transaction. By keeping detailed records of your business expenses, you can build a picture of your outgoings enabling you to identify areas of concern and potentially time expenses to smooth your cash flow. This enables you to plan ahead and make provision for large expenses or dividend payments more effectively.
Expenses can sometimes be the most difficult items to keep track of from a business perspective but there are some sure-fire ways to ensure that you can track them quickly and compliantly;
Track and record as you go. Small expenses can get lost in the pile of papers, especially if it’s a train ticket. Deal with them daily or at least weekly. That way the information is fresh and you are less likely to lose the receipt.
Ensure that you use your business bank account to pay for the majority if not all of your expenses; there is a better separation of your expenses from your personal spending as well as a more robust audit trail.
- Make sure you keep the receipts safe and filed chronologically. Many accountancy services offer scanning software so you can scan in your receipts and retrieve them wherever and whenever you need them, no more worrying about crumpled papers in your wallet.
There are specific rules regarding what constitutes a business expense for tax purposes. You can read more about tax deductible business expenses here.
Journeys
If you use public transport to travel to meet a client or work at a temporary place of work (e.g. your client’s office), simply retain the receipt and you can claim for your fare. Claiming for your mileage in a personal vehicle is slightly more complex as it’s based on the number of miles you travel rather than a flat cost.
HMRC publish a fixed rate for mileage which you can claim without having to pay tax – for a car this is 45p per mile for the first 10,000 miles per year, and 25p per mile after this. The mileage allowance is designed to cover the car’s running costs and the fuel costs. Cycle to your client’s premises? You can claim for mileage on your bike too (20p per mile).
Mileage claims soon add up so claiming for all work-related journeys can make a real difference to your tax liabilities. Remember, you need to ensure that the mileage claimed can be supported by your timesheets, it doesn’t hurt to keep a narrative of why the journey was required.
Please note; contractor’s commuting to their client’s site must comply with HMRC’s 24 month / 2 year rules to be able to claim travel expenses. You can read more about the 2 year rule here.
Keeping track in ten minutes
Being organised and focused when it comes to your company’s admin takes the hassle out of keeping your records up to date. By doing little and often, the information is fresh and it’s less of a chore.
We recommend that you try to keep track in ten minutes. Hit play on your favourite Spotify playlist and spend 10 minutes either at the start or the end of the day recording all of the details you need to keep your business running smoothly. Create a holding area for items that need tracking. For the purposes of record keeping, this isn’t a dumping area – clear it each day and keep it separate from any ‘pending’ or ‘in’ trays of work. Input all the details you need to into your chosen platform and ensure you file away any physical copies each day.
Taking the time to find a system that suits you and committing to clearing all your admin each day ensures you’ll always be ahead with your business finances.
This article was provided by inniAccounts. inniAccounts are Queen’s-Award winning accountants. They combine specialist software and on the tap pro-active advice to make managing accounts simpler and contractors more productive. Got a question? They’re happy to help with any queries, simply contact them here.
