Simplifying businesses expenses for the self-employed (in 3 easy steps)
Whether you’ve been self-employed for a while or are just starting out, one thing remains the same: managing your own business involves running costs.
Knowing what you can and can’t claim for, and staying on top of your business expenses, can be challenging, especially if you’re a sole trader with little time on your hands or extra resource to rely upon.
But managing your business expenses doesn’t have to be a drain on your time. In fact, you can actually save time and money if you take a proactive approach to managing them. Follow these 3 steps to make managing your business expenses easier:
STEP 1: Keep a regular log
While recording your expenses as you go along may sound like something you don’t have the time to do, it’ll actually save you lots of time (and potentially money) in the long run.
If you’re currently logging your expenses manually, then you may want to switch to an automated expenses management system that’ll make it quicker and easier for you to stay on top of your business expenses. It’ll also reduce the risk of you misplacing your receipts, which can result in you not being able to claim accurately.
For example, many expenses management systems let you automatically categorise your expenses, calculate your VAT and publish reports, within seconds and all at the touch of a button.
STEP 2: Capture the evidence
How many times have you gone to record an expense, only to find you don’t have the receipt to back it up? Using an automated system will make it easier for you to keep your receipts and the details of your expenses together.
Photographing your receipts as you go along and saving them with the appropriate business expense helps you create a clear audit trail (should HMRC re-open your return) and makes it easier for your accountant to do their job more efficiently (meaning a smaller bill for you in the long-run).
STEP 3: Don’t mix up personal and business expenses
One of the most common mistakes self-employed people make is getting their personal and business expenses muddled up.
For instance, professional costs, such as accountancy and legal fees, are classed as allowable business costs for self-employed people. However, you can’t claim for legal costs associated with buying property and machinery or fines for breaking the law. For more details, visit http://www.gov.uk/expenses-if-youre-self-employed/overview.
Recording your business expenses on an automated system as you receive them should help you avoid getting your personal and business expenses muddled up, as some systems enable you save your expenses by business type.
See the difference between managing your business expenses using an app or a shoebox of receipts by checking out our infographic, ‘Expenses apps vs shoebox of receipts.’