Welcome to self-employment, which means having different habits. The first thing you should do is to speak to an accountant like ourselves, and it is much better to be talking to us too early than too late. We can advise on starting as a sole trader or partnership versus starting as a company, and on VAT registration and taking on employees. We will dissuade you from doing anything inappropriate or over the top. Here are a few notes on record-keeping:
Never Throw Anything Away
If you do, it could cost you money. It will never save you money. To begin with, keep your last P60, your last pay slip and your last P45 from employment. We will probably ask to see them when we do your first income tax return.
A document like a P60 is valuable to you for many purposes, and you could just give us a photocopy. What would be best is to scan and e-mail it to us as a PDF, so we recommend that you own a cheap scanner/printer if you don’t have one already. This has other purposes, like sending photographs to relatives in Canada and Australia.
The e-mail system preserves a record of the document and when you sent it which we can both review later. Other examples of valuable documents are P45s, last pay slips, Construction Industry Scheme statements and anything which gives you a reference number or an authorisation code.
The Shoebox System
If you put everything in a old shoebox and hand it in to us, we can soon sort it into what we want. What we cannot do is to exercise psychic powers to view documents that are not there. This shoebox system is far superior to some of what we see and we occasionally wonder why clients do not use something like it.
Signing up with HM Revenue and Customs
You are supposed to tell the Revenue within three months if you start a new business, so see an accountant at once if you haven’t done this, but there probably won’t be any reason to worry. The first thing an accountant will do is to apply for your Unique Taxpayer Reference if you don’t have one already. The UTR is a 10-digit number in a format like 12345 67890 and it is needed to submit a tax return. Once we have the UTR, there is a second stage where the accountant needs to apply to be able to represent you online. Allow a month for these stages to be completed, so don’t leave it to the last minute.
We can get plastic concertina folders from our local supermarket, Morrisons, for £1.99 each. We recommend that you buy two of them straight away to organise your first documents, keeping one for next year. You will need to hand it in to us to prepare your accounts. When you get it back, transfer everything to a cheaper document wallet to store it away for at least six years, and re-use the empty concertina folder in the third year. This is the best value-for-money on record-keeping you will get.
If your records consist of a lot of invoices and vouchers, then please organise them in your concertina folder by the month.
Bank and Credit Card Statements
We are keen on using new technology. We ask you to give us a complete run of bank statements, and usually the first thing we will do is to scan your statements using optical character recognition to do a “data grab” into our software. This means that often you do not need to do any bookkeeping work at all if the bank has done it all already and all your income and expenditure is through the bank.
If you make small purchases, then please do it through a credit card and give us the statements, which we may also scan in with OCR. Once again your bookkeeping is being done for you.
You may write in pencil on the bank and credit card statements if you want to give more detail on some transactions. We recommend that you do this for income items which are not business sales but capital introduced by you to get the business going, usually at the start.
Mileage, miscellaneous out-of-pocket expenses, typical business expenses and invoices are dealt with on our page about basic free handouts.