Knowing what you can and can’t claim as a business expense is one thing, but how do you even record all the ins and outs? Fortunately, keeping good accounting records is something we know loads about, so we can probably chip in with some answers here.
What are expenses?
If you’re unsure what the term ‘business expense’ actually means, don’t worry, you’re not the only one. It’s a blanket term, and a business expense for you may be completely different to another business owner working in a different industry.
In short, expenses are things you buy for use in your business. An example of this is software for a freelance graphic designer, or fuel for a self-employed taxi driver.
How do I show business expenses in my accounts?
Thanks to Making Tax Digital it’s highly recommended that you future-proof your processes and record everything digitally.
Essentially, you need to make sure you have up-to-date accurate records of all the transactions which happen in your business, including any relating to expenses. You could create a spreadsheet or other database, or use bookkeeping software to manage everything.
If you’re a VAT registered business you’ll already be familiar with the record-keeping requirements, as MTD for VAT was the first stage of the digital rollout.
Do I need to keep hold of the receipts?
HMRC no longer expects businesses to keep physical copies of receipts, but you should definitely have documentary evidence wherever possible, whether they’re electronic or paper copies! As long as you can prove that you spent the money and what it was for, then you are good to go.
Good accounts software (we won’t be subtle, we mean us but other providers are available) will include a receipt upload feature which allows you to take a photo of the document or upload it from your device, and assign it to a transaction without needing to keep the original bit of paper. It’s nicer than rummaging round through a shoebox or in the footwell of your car if you need to check something!
Understanding different types of business expenses
Although it doesn’t affect how you calculate and claim your expenses, it’s sometimes useful to break your spending down into categories so you can monitor things more easily, such as expenses versus costs.
There are different ways to do this, but to give you an example, overheads are costs which help keep the business running but not directly related to the products and services you provide. They might be ‘fixed’ where the amount stays the same each time you pay it (such as rent), or ‘variable’, where the amount fluctuates based on your usage (like some utility bills).
Looking at your expenses like this makes it easier to see the spending which is really essential to the business, or where it could be more efficient.
It can also help you plan your finances. For example, you’ll need to pay rent even if you close for a week, but you might not need to buy other supplies whilst you’re off.
Learn more about using Pandle to make business accounting easier. Create a free account or use Pandle Pro for £6 a month.
