The simplest accounts are just a single piece of paper with income, expenditure and profit. These simplest accounts are best for small sole traders with income of less than £80,000 and no need to account for stocks or debtors.
These accounts, which would form the basis of your self-assessment tax return, are quick and easy to prepare if you have done much of the ground work yourself, like keeping a list of invoices or sales, and working out what your expenses are.
Some people manage this with a notebook, others prefer to use a spreadsheet. Either way, I will help you to find out what works best for you, and even show you how to use a spreadsheet if necessary. I will also help you work out the best system to help me to use these records as the basis for preparing your income and expenditure account, and tax return.
There is a benefit to you of keeping your own books, in that you will have a good idea of how much money you’re taking and spending, which makes it easier to manage your own finances and plan for the tax bill when it arrives, or keep track of your income to see if you are close to the VAT registration limit (£85,000) or the deregistration limit (£83,000).
The secret to good administration is organisation. If you are able to update your records monthly or even weekly, it will make both your life and my job easier: there’s nothing worse than having to hunt for missing receipts, reconstructing records of cash you’ve taken or anguishing over the money you were sure you spent but can’t tie to an invoice.
It is important that you can demonstrate your reported income is complete and that your expenditure can be evidenced. If you keep on top of your record keeping and can demonstrate that you take your responsibility to keep proper books and records seriously, this will significantly reduce the risk of problems should HMRC review your tax return.
Remember, your accounts will not only be needed for HMRC, you may wish to buy your own home or borrow money for something else, these accounts will help you to demonstrate you are able to afford the borrowing you are proposing. If your records are up to date, you can give the lenders and their underwriters better information quicker, especially if you are seeking to borrow more money because your business has grown since the last time you had your accounts prepared.
Of course, electronic record keeping with a spreadsheet or even a Google Sheet you can share with your accountant is the best and most convenient way for many people to keep their books (you can also update these ‘on the fly’ with your smartphone or tablet!) however many people will carry round a notebook, writing everything down. Really, it’s whatever is best for you.
These types of accounts work best for very small businesses, for example:
- Taxi drivers;
- Window cleaners;
- Hair dressers (who ‘rent’ a chair);
- Bookkeepers;
- Small eBay traders;
- Music or academic tutors; and
- Many more!
Once you have nailed keeping simple records, it’s easy to evolve your system as your business grows.
To find out how I can help you or your business, please drop me an email Miranda@MJY-CA.com.