I get asked questions about bookkeeping all of the time. Below are a few of the frequently asked bookkeeping questions. If you have one that’s not answered below, please contact me and I will happily answer it for you.
General Bookkeeping Questions
- Bookkeeping – What is it and why do I need to do it?
- Bookkeeping – What are accounts for?
- When does the financial/ tax year begin and end?
- Business Expenses – What can I claim?
- Self-assessment tax return – What is this and when do I have to complete it by?
- How long should I keep my receipts?
- Am I allowed to be a sole trader and have a part-time job at the same time?
Bookkeeping – What is it and why do I need to do it?
Basically, bookkeeping is just filing your receipts and creating an index record of those receipts. This record is your accounts and is a summary of all your daily transactions in your business. You need to keep accurate records in order for you to understand your business and to help you complete your self-assessed tax return each year.
Bookkeeping – What are accounts for?
Your accounts are the financial story of your business. Anyone who looks at them should be able to see what you buy and sell and understand what your income and expenses are and where they come from.
If you’re not recording everything that you need to, then the story is incomplete. It’s a bit like a murder mystery that your sibling or pet has got hold of and torn some of the pages out so you don’t know who did it. It’s frustrating to those who need to read your business story, such as your accountant if they produce your Financial Statements or HMRC should you be chosen for an audit, as they have to try and fill in the gaps and work out what’s missing.
The better your accounts records are, the easier they are to read and the fewer questions will be asked about your day to day activity. Well documented accounts will also make it easier for you to calculate the figures you need for your tax self-assessment and you’ll spend much less time completing this when the time comes.
When does the financial/ tax year begin and end?
In the UK, the financial year starts on 1st April and ends on the 31st March, while the fiscal year (tax year) starts on 6th April and ends on the 5th April. This seemingly arbitrary date is all because of a changeover from the Julian Calendar to the Gregorian Calendar in 1752 when, at the time, we celebrated New Year at the beginning of April.
The good news is that HMRC accepts 31st March as being equivalent to 5th April, which makes things a lot easier when it comes to completing your bookkeeping, as you can end your year at the end of the month. This also helps when it comes to business data analysis, such as budgeting.
Business Expenses – What can I claim?
I am asked this a lot, and while it’s all listed on HMRC, I know even these letters make some people squirm, so instead of redirecting you to their website, here’s a guide to Expenses for Sole Traders that I created for you.
Self-assessed tax return – What is this and when do I have to complete it by?
If you are self-employed, you will need to submit a self-assessed tax return to HMRC in order for them to calculate how much tax and national insurance you need to pay. It’s not a difficult process, but it can take a lot of time to answer all the questions and collate all the information together before you start.
The self-assessed tax return is submitted on a yearly basis. You have from 6th April to 31st January to submit your self-assessment online (the paper deadline is 31st October). That’s a long time, 9 months in fact, and you don’t have to leave it until January either, you can submit anytime after 6th April. So, if you’ve been updating your books regularly, then you will have all the information you need to get started right away.
The deadline for paying your tax bill is 31st January. Again, you don’t have to leave this to the last minute and it is possible to set up a regular payment to help you plan for this expense in the current financial year.
How long should I keep my receipts?
You need to keep all your receipts and invoices for 6 years plus the current financial year. They don’t need to be in hard copy, HMRC are happy with digital records, so you can save them to your computer. However, you need to ensure that it is easy to find them and match them to your accounts records. Good practice would be to save them with the date of the document at the beginning of the title in the format ‘yyyy-mm-dd document name and reference’, as this will store them in date order.
You will also need to ensure that you have a backup of your files and keep this either in the cloud or if on an external hard drive, in a different room to the computer. That way if something should happen to your computer, the backup is less likely to have the same fate.
As an alternative, you can use any number of receipts apps, which store all the data and a digital copy in the cloud so you can bin your receipts once they are processed by the app. I reviewed a few in my recent newsletters and my favourite is 1 Tap Receipts/ Receipt Bank.
Am I allowed to be a sole trader and have a part-time job at the same time?
The answer to this is simply ‘Yes’. When you complete your self-assessment tax return you will also have to fill in the section relating to your part-time (or full time) employment. Your employer will provide you with a P60 at the end of the tax year and this will give you all the relevant information you need to fill in on your tax return. Any tax you have already paid is taken into account to calculate how much you will need to pay on your self-employed earnings.