Hi, just needing some help to hopefully put my mind at ease.
I started up a small gardening / landscaping / handyman type business as a sole trader in May 09 after being made redundant in a previous job.
I have kept all receipts of any business related purchases made, ie, new van, tools, petrol, materials for jobs etc.
I have also kept all invoices i have issued to customers for jobs carried out and all of these have been paid (9 times out of 10 on the day issued.)
i have an excel spreadsheet which clear and my records are all nice and neat for all the business income and expenditure. as my first year is completed i would like to do my tax return.
my only problem is that during my first year i wasnt always earning quite enough every month to pay myself (to pay my own personal bills, mortgage etc) and then have enough cash left over to buy materials for instance. So from time to time i have used my own personal credit card to fund my business expenses (which has always been to buy materials for jobs.)
As a result my business bank account statements dont necessarily match up to exactly what i have recorded as my business expenditure as i have obviously used my personal credit card at times.
is this going to bite me on the @rse?
Im hoping and assuming that as long as i have all the records (receipts, invoices, etc) and know my profit figure (total income minus total expenditure*) then i should be ok??
* i have not included any 'wages' i have paid myself and my monthly NI contributions in my total expenditure figure
As a sole trader although it is best to keep finances separate from your personal finances but you are the business and the business is you.
This changes if you become a limited company. But where you are now don't worry too much about having borrowed from one to pay the other.
I can understand why you want to tackle your own Self Assessment being a new business and probably not having loads of cash floating around, but believe me when I say that getting someone who knows what they are doing is worth every penny. There are times to save money, for example you have probably saved a fortune by being organised. But there are also times when doing things yourself is a false economy. I'd suggest this is one of those times.
Getting this stuff wrong can become a nightmare. There are many bookkeepers who are both qualified to do this and happy to do it for far less than accountants charge. Have a look around.
The views expressed in this post are my own personal (HRA protected) views, and are not representative of any organisation I have any involvement with.
I would only echo Kris's comments, on here many of us come across dozens of individuals such as yourself who think they can complete their own SA and get it hopelessly wrong (I am not saying you would but ...) and then have to pay someone a lot more to get it fixed than if they had got the bookkeeper/accountant to file it in the first place.
If you decide that you want to try to find a good bookkeeper, let us know on here where you are and I am sure we would have a member nearby who would be willing to help you.
But if you do go by yourself, I hope that it works out ok.
I have to say, you are a fream come true to bookkeepers, as you understand the idea that the business is not you as such and that keeping things seperate is welcome.
The way you operate is commendable, having a seperate bank account etc but as a sole trader, you and the business are the same, so you should ensure that you put the amount against your drawings figure, not that it makes any difference ot the profit, but would on a balance sheet, if you are having one.
@ Jonny - the business payments you made using your personal credit card are effectively a loan to the business.
In terms of the bookkeeping, when you pay for something from your business bank account, the double-entry would be Debit expenditure account : Credit (Reduce) Bank Account.
When you were paying for things with your personal credit card, you would need to create a new balance sheet code called (say) "Expenses Control Account". The double-entry would be Debit expenditure code : Credit Expenses Control Account.
The credit on this balance sheet expenses account would be a liability on the part of the business, that is the business would owe these expenses to someone, you.
When your business increases its net cash assets, you could repay yourself the expenses you incurred on behalf of the business. Here the double entry would be Debit Expenses Control Account (you are reducing the liability with this entry) : Credit Bank Account (the bank account reduces by the amount of expenses you are repaying yourself). The Expenses Control Account is not part of the Income and Expenditure figures, so doesn't affect taxable profits. You will have already recorded the Debit when you first made the expenditure using the credit card. This approach keeps things clear and certainly doesn't store anything up that's then going to come back to bite you in the arse!
Sounds like you have a good appreciation of your business finances. The above is simply the bookkeeping involved where you have paid for something on the companies behalf.
It's a bit like putting part of your mobile bill through the accounts where you have made business calls. here you would record the mobile phone expense as a debit in your business accounts and credit the Expenses Control Account. Again, at some point the business would repay these expenses to you.
this seems a bit of overkill for a sole trade. Any expenses paid personally would be better treated as capital introduced and any money withdrawn as drawings, it will just be shown in his current/capital account after all. You also probably would not want to produce a balance sheet with a current/capital account and the a Credit expenses control account, seems fairly pointless.
Jonny,
As other have said the advice of a bookkeeper or accountant will probably be very helpful in year one as you may not appreciate things such as capital allowances etc (you might, not sure of your level of knowledge). Not sure what the rates are in your area but if you had a well prepared cashbook you could get your tax return prepared and some advice for a few hundred which will probably be money well spent in year one.
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Forgive the typo's I generally do not proof read. Just lazy I guess!
adi2402 wrote:Any expenses paid personally would be better treated as capital introduced and any money withdrawn as drawings, it will just be shown in his current/capital account after all. You also probably would not want to produce a balance sheet with a current/capital account and the a Credit expenses control account, seems fairly pointless.
I did debate whether to describe the current / capital accounts, but decided that may be getting too complicated. Totally agree that this would be the alternative and that there would be no point in using these AND an expenses control.
I see your point but personally i would never use an expenses control as it would not fall in line with the accounts layout i would use, however its all the same at the end of the day.
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Forgive the typo's I generally do not proof read. Just lazy I guess!
Just to add my bit. If you decide to do your own SA do yourself a favour and prepare your accounts to 5th April even if that wasn't your year end, and then each year work to this date. This will overcome problems of 'overlap profit' and opening year difficulties. However I would echo what has already been said about getting someone qualified to do this for you, probably won't be as expensive as you think!
