Freelancer books/banks/accoutnant

[the shadow]

Hi,

I started working freelance whilst I was still at uni so my first tax return was no where near the threshold and was fairly straight forward but since I've finished I'm now freelancing full time and don't think Im keeping the best records. Should I have separate bank account for work money to go into even though I'm a sole trader using my own name?

 

whats the norm for keeping records of what people have earned? I've got all my invoices from the past year and thats all been done correctly but should I have all the figures in spread sheet along with expenditure?

Would I be best getting an accountant ?

 

sorry if this doesn't make sense or has been asked before.

 

Thanks.

[OllieDuff]

You don't have to have a separate bank account, but if it makes it easier for you to do your books then you can do.

You'll need to keep records of the invoices you issue to your clients, as well as copies of receipts for any expenses which you are eligible to claim against income. A spreadsheet can be useful in keeping track of everything, but is not essential. I use a spreadsheet because I can then track exactly how much I invoiced each year, and what expenses I have claimed on my tax return. To complement the spreadsheet, I keep each year's invoices receipts in a folder (both paper copies and a digital backup) and each receipt is uniquely numbered. This means that should I ever be audited, I have a record of what my gross income was, how much I have claimed in expenses against that income, and evidence to back it up.

It's unlikely to be cost effective for you to get an accountant, unless you have a very complex tax situation. For reference, last time I did a tax return I was accounting for PAYE income from three different employers, my self-employed income and expenses, and capital allowances for some fraction of the value of my car and tools (which are used for both business and personal use), and it took me about an hour and a half, including a phone call to HMRC.

[w/robe]

Full reply from Ollie. I would just add that I had an accountant for years before deciding that, with filing on line, it was easy enough to do my self. I normally set aside half a day and easily get my return done.

 

I do have a separate bank account which my freelance income and petty cash go in to and I then transfer income minus an estimate of tax in to our current account. I find it easier with this separation but I can have quite a bit of petty cash (currently £9300) almost all of which is being spent in relatively small transactions. The separate bank account means anything in the current account is ours.

[Jivemaster]

Your accounts MUST be complete and accurate, it matters not how you do them. If you are actually good at doing admin then do them yourself, if you hate paperwork then get an accountant. Usually an accountant will have more skill than you with the books and get current updates from HMRC and accountancy institutes and will know the best practises better than you and may even save you money.

 

Your clients may prefer to deal with you as an individual or a small limited company. Also remember that things will change over your self employed career.

[Junior8]

It used to be said that an accountant should be able to save you more in tax than they charged in fees. In simple businesses I just don't think that is true any more. You could just use a cash book and simple double entry book-keeping. Its' simple - on the left hand page you list the money in, on the right to money out total the up at the end of each month and what is left is the profit. It worked fine for everybody for years. I still believe the average self-employed person doing only a few jobs a month with very little in the way of consumables could run a business quite effectively with a cash book and duplicate invoice and receipt books. The important thing is that everything concerned with the business goes through those books. I have given a receipt for a fiver before now. If you don't like this kind of work what you need isn't an accountant its a book-keeper the two are different things entirely.

 

As far as bank accounts are concerned it doesn't matter about having a separate one as long as you can identify what id business income and expenditure. BUT it pays to be careful, a mate ended up with a tax inspection because he was using the company credit card for personal purchases and was shopped by a suspicious retailer. Happily there was no problem in the end as he was able to show the balancing paymentsbut it does indicate that you have to be careful about some things.

 

 

[timsabre]

It used to be said that an accountant should be able to save you more in tax than they charged in fees.

 

My accountant still does do this, he keeps up to date with the ever-changing and complex tax rules to make sure I am legit but taking advantage of any tax perks that apply to me. There are often things I would never even have thought of and it is hard to keep track of the rules. I do all the day to day bookkeeping myself though using Quickbooks.

I would really recommend having a separate business bank account, if you shop around it needn't cost you much or indeed anything but it makes everything much clearer if questions start to be asked by HMRC.

[Stuart91]

If you have any sort of quantity of transactions, you will save a lot of time by using an online accounting package that can take direct feeds from your bank account and credit cards. We have recently moved over onto Xero but many others are available.

 

As well as saving time, there is increased accuracy since the numbers aren't getting retyped. You can also have your accountant log in directly and see up to the minute figures, rather than sending files across.

[the shadow]

Hi all,

 

Thanks for the replies. Ive kept all invoices and have little outgoings only fuel and the odd tool so should be easy enough to keep one bank so I will keep it as it is then if needs be set up a new account for the next tax year.

I think ill be best setting up a spreadsheet though as I have no idea how much I earned.

 

Cheers.

[alistermorton]

I have no idea how much I earned.

 

That's a pretty fundamental requirement for your tax return :-)

 

 

 

[GR1]

You also need to get in the habit of keeping your spreadsheet up to date. It can be difficult to remember all expenses 6 months after the event. I update my spreadsheet every time the bank sends a new statement and it usually takes less than one hour. If you leave it to the end of the financial year that is a recipe for disaster.

[Jivemaster]

Probably the first requirement of being a self employed person is that actively LIKE doing the books. From complete and correct books comes an easy way to fill in your accounts and tax return.

If you cannot enjoy doing the books then probably it's best to look for PAYE employment. You need to keep up to date with what you can claim tax relief on and what you cannot. If you cannot do your own book keeping then maybe you will have to pay a book keeper.

[david.elsbury]

What about something like Xero which can link to your (work) bank account and automatically categorise your expenses based on retailers e.g McDonald's comes into food category, a hardware store would come into the repair category

[Jivemaster]

If you do not do the books carefully on a regular basis you will not be ready for the payment that HMRC will demand from you, you may not even have cash liquidity to pay the bill.

[kgallen]

It's important for you to keep absolute clarity on what cash is yours personally and what is cash belonging to the business, even if you are a sole trader. The cash only transfers from the business to you at well defined and recorded transactions between the two entities (the business and you), taking proper account of the tax and NI liabilities that go with that for both yourself and the business.

 

Also if you buy something ("an asset") you need to be absolutely clear if that is something you are buying personally from your cash or if the business is buying it in which case it belongs to the business not you.

 

I remember a Dragon's Den episode once, where the guy seeking investment from the Dragons had claimed the business owned various things including a plane, which later turned out he had bought with his own cash so it wasn't a business asset. The Dragons tore him apart after that.

 

At some relatively low threshold of business takings, you'll enter the VAT arena. The VAT man is more ruthless than the tax man and will eat you alive on a quarterly basis if you are not absolutely clear on what money came in and what went out.

 

As others have stated, your book-keeping needs to be clinical. You just have to stay on top of it. A folder full of un-auditable receipts and invoices is no use to anyone and any accountant will charge you lots of hours to sort it all out if that is what you chose to hand over.

 

Good luck!

[ImagineerTom]

This is one area where technology has REALLY made a difference - there are a wide range of app's for your phone which help you with reporting and recording. We use one app which takes a photo of every receipt/invoice you have (so no wallet stuffed full of dog-eared paper) and OCR reads it to then generate an electronic record of it and keeps everything in a dropbox folder which you just give to your accountant/bookkeeper and they can sort everything in mins because it's all electronic and import it in to whatever book-keeping system you want.

 

There's also some great apps for generating invoices, purchase orders and all the other paperwork you need and again they create electronic copies which can be easily accessed by accountants to do your proper accounts.

 

For about £15 in apps we've given every one of our staff the ability to do paperless expenses/purchases and issue invoices/purchase orders in the field with everything they do appearing in a dropbox folder on our in-house accountant's desk.