I often get asked how one should keep records, how to record expenses and income, how to show HMRC what you’ve earned and spent…
So here’s my view on it.
HMRC doesn’t actually require you to keep any particular type of accounting. All it cares about is that you can provide them with figures.
You can keep a shoebox full of receipts, you can dump everything in dropbox, you can keep it in a spreadsheet, or you can have a notebook full of scribbles. It really doesn’t matter; you do you boo!
For HMRC, just somehow recording the purchase is enough. Date, description and amount is all you need to prove that you’ve bought something, however if you get a receipt, KEEP IT. You can have a mixture of printed receipts from shops, invoices emailed to you or electronic invoices in various websites. When it comes to submitting your self-assessment, you don’t need these receipts, but they’re good to have in case of a tax audit.
I’m not a fan of shoebox accounting. This is very much the norm in one-man-bands of the older generation where at the end of the year they carry this box to their accountant who then compiles the actual records for them. It’s a messy way of accounting and it’s easy to miss items off. Just chucking everything in dropbox is the more modern version of this, and I wouldn’t really rely on this as you’ll need to do a lot of work at the end of the year.
For you creative types, notebook accounting might be perfect. This is my example:
Never mind what the expenditure & amounts are, hope you can see the point here? I’ve got description, date & amount there. If I wanted to track expenditure relating to blogging but that I can’t deduct in my tax return, I do what I’ve done with training here; I’ve added a line for it, added the amount below and then put it in as “0.00” for actual accounting purposes. Any physical receipts I have, I’d washi tape to the page next to the lines, and off I’d pop to decorate. Stickers, funky pens, drawings etc are allowed – this is YOUR accounts, it doesn’t need to be plain!
As someone who deals with Excel for 8 hours a day, only to come home to play with Excel, that is my preferred way of keeping accounts. It doesn’t need to be hyper-complicated, but with Excel you can sum up things immediately and you get an immediate view of what your profit for the year is.
If you have a look here, you will find a spreadsheet. To actually use it, you will need to download it to actually use it as Google Drive loses some of the formulas.
This is a simple frankensheet of accounts. It might look confusing at first, but once you’ve got it set up, it’ll calculate your profit for the year and your tax liability (by making some major assumptions, but it’ll work for 80% of people). If you don’t want it to calculate your tax liability, you can just use the ‘Accounting’ sheet on GDocs, but if you do, spend the time filling the yellow cells in, and it’ll do all the hard work for you, and you know how much you should have in your savings to hand over to HMRC at the end of the year.
How do you keep your accounts?