Small business bookkeeping how-to

Everything you need to do your small business bookkeeping is right here!

  1. First you must register as self employed with HMRC and start paying Class 2 National Insurance Contributions: for more info see Self employed NIC's.
  2. Then you’ll need to separate business from personal finances.
    Paperwork etc explains what pieces of paper to keep and for how long.
  3. Keep track of paid/unpaid supplier/customer invoices with a simple filing system for invoices.
  4. You’ll need a simple bookkeeping system capable of analysing your expenses into the categories used on the self assessment form. No (allowable) expense spared covers those expense categories and includes a detailed look at what you can and cannot claim for.
  5. You’ll also need a way to manage your day to day petty cash expenditure: see Accounting for petty cash.
  6. And finally, if your business is doing really well, you’ll need to periodically check your turnover to see if you are getting close to the VAT threshold: see Should I VAT register?

Download bookkeeping spreadsheets and stationery etc…

Bank reconciliation

The process known as bank reconciliation involves aligning the data in your cashbook with that in your bank statement. You should do it when you get your bank statement, eg monthly, as it is an essential step to ensuring the accuracy of your books.
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Do I need a bookkeeper or an accountant?

Well, you may need both but if your tax affairs are simple, eg you’re self employed and on self assessment, then you should only need a bookkeeper, which is a lot cheaper. One thing you definitely do not want to do is use an accountant for routine bookkeeping duties!
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Should I VAT register?

You must register for VAT if your turnover for the previous 12 months exceeds the VAT threshold, currently £83,000 (2016-17). This is called compulsory registration and you’ll be fined heavily if you don’t comply. If you think you’ll go over the threshold in the next 30 days then register for VAT by contacting HMRC. Note that the 12 month period is just the previous 12 months and is not in anyway connected to your accounting period.
If you think you’re getting near this threshold then keep a running total of your turnover for the previous 12 months. Turnover in this context should include all sales within the scope of VAT, even zero-rated supplies! Exclude only those that are exempt or outside the scope of VAT.
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Your loss or HMRC’s?

If you make a loss, as we all do from time to time, make sure you use it to your advantage by claiming tax relief on it!
You can offset a loss against other taxable income (and then any capital gains) for the current tax year or your total income (and then any capital gains) for the previous tax year.
Furthermore if you make a loss within the first four years of a business, as many startups do, you can offset this against your total income for the previous three tax years including earnings from regular employment.
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No (allowable) expense spared

Business expenses add up to reduce profits thus reducing your tax liability. You’ll need evidence of all these expenses so keep all receipts for anything that can be reasonably construed as a business expense. Yes, even that bus ticket on the way to town to buy stationery, another legitimate business expense!
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