5 ways to improve your bookkeeping when you`re self-employed
One of the things a lot of employees take for granted is having someone else take care of the financial stuff. Taxes and National Insurance contributions? Already deducted. Student loan repayments? Handled automatically. Have an expense to claim? Pop in a form and a little while later it appears in your pay. It’s easy and you barely have to give it a second thought.
However, when you’re self-employed, everything suddenly becomes your responsibility to manage and that can be daunting. If you make a mistake, it’s you who has to deal with the consequences. It’s not as scary as all that though. If you’re well organised and keep one eye on the future, bookkeeping is pretty straightforward.
So, grab a cuppa and sit back while we give you some top self-employed accounting tips.
Decide how you’ll be record-keeping
Record keeping is half the battle when it comes to organising your accounts. You need to be clear and efficient so that when you come to do your tax return, you know exactly what your incomings and outgoings are. You have a couple of choices when it comes to keeping records. You can take a DIY approach by using a spreadsheet.
A well-placed Google search can find you various templates for accounting spreadsheets for limited company contractors that can save you a lot of time.
The other option is a third party system such as QuickBooks, Xero or FreshBooks (there are many more out there). These services help you to keep your records and also have additional features such as payable invoicing and automated money in and money out. For use of the service, you will pay a fixed monthly or annual fee.
Keep track of absolutely everything
You need to keep absolutely everything when it comes to accounts. This means receipts, invoices, the works. This is where a lot of people fall down as they chuck everything in a draw and then can’t make head nor tail of it several months on. Some easy-to-adopt habits include:
- Photograph receipts as soon as you get them, put them in a specific folder for the relevant tax year and use a naming system that makes sense to you. You could also use an expense app, such as webexpenses;
- With online/email receipts, save them as an image file or PDF and pop them in the same folder with the same naming system;
- If you want to keep the physical copies as well, use folders or envelopes to keep them in order; . Set a weekly, fortnightly, or monthly time for yourself to update your spreadsheet/accounting software so that it’s regularly completed.
- If you adopt habits like these, you won’t end up with an unfathomable pile of receipts amassed over a year that need to be added to a spreadsheet with little or no context. Instead, you’ll gradually work through it in manageable chunks that save you time and stress overall.
Put money aside for your tax bill
It can be tempting to not think about your tax bill and instead dismiss it as some future evil to be handled later. It’s important that you put money aside from your incomings to cover your tax bill though, as you don’t want to be scrabbling around to make up any shortfall when it’s due.
Typically, people recommend that roughly a third of your incomings should cover everything – especially as you’ll need to make payments on account for the next year as well. This might seem like a lot to deduct but, remember, if you were an employee, this would just be deducted before your pay even hits your bank account.
Keep your business and personal finances separate
If you’re a limited company it’s a legal requirement to have a separate business bank account, so setting this up needs to be one of the first things that you do when you launch your business.
However, even if you’re a sole trader it’s advisable to keep your finances separate as it makes it much easier to make sense of everything if there are clear distinctions between business and personal. For instance, if you need to cross-reference your bank statement with your accounting spreadsheet, there are no personal expenditures muddying the waters.
Consider an accountant
An accountant might seem like an unnecessary expense when you’re starting out, a luxury to be indulged in when your business is a bit further along. But hiring an accountant can save you time, enabling you to spend less time in Excel and more time developing your business.
Their tasks can include:
- Corresponding with HMRC on your behalf
- Handling the annual accounts and dividend calculations
- Navigating your income tax self-assessment
- Keeping you abreast of changes to legislation
- Helping you to work out your IR35 responsibility
As you can see, an accountant can take a lot off your plate. So, while they might seem like an expense you can’t commit to right now, they could save you a lot in terms of time and energy as well as giving you confidence that your finances are being handled by an expert.
This article is for information purposes only and should not be seen as financial advice. You should always consult with your accountant or a finance expert for any tax advice. This is not a sponsored article and neither Kingsbridge nor our staff has any affiliation to the websites or services mentioned in this article.