Small Business Bookkeeping Deadly Sin #3: Not Separating Private and Business ExpensesKelly
Want to push the HMRC’s ‘hot button’? Muddle up your private and business expenses. Most people don’t know that this is a big ‘no no’. It is actually very important to keep your business and private expenses separate, as most expenses you incur in running your business can be claimed as deductions to reduce your assessable income. Many people get caught out here because private and business accounts are used for both purposes and it can get messy. So beware!
There are some simple steps you can take to make sure this doesn’t happen to you.
Have Separate Accounts for Business and Private Expenses
Have a separate bank account for your business expenses and your private expenses.
Keep All Your Receipts
Have an envelope, binder or folder to put all your business receipts in. Put them in straight away, and write an explanation on the back so you remember what it was for. With today’s technology it can even pay to scan them and keep an electronic copy.
Use a Separate Credit Card for Your Business
Make sure you have separate cards for your business and personal expenses. Don’t use your business card for personal expenses and vice versa. The less confusion the better especially if the tax man comes calling.
Understand What is a Business Expense and What Isn’t
In order to separate your business and personal expenses it’s important to know what is actually considered a business expense. Among the biggest pitfalls in keeping finances separate are things like entertainment, food and travel expenses. You can find more information about deductions for business from the HMRC website or from your accountant.
It is important that the records of these business transactions, including expense claims are kept for five years after the transactions are completed. The easiest way to do this is with small business bookkeeping software. Use a simple program that uses columns to record all of your expenses and allows you to make changes easily. This will save you a whole lot of time and possibly heart-ache if and when the taxman comes knocking!
Click here to read the introduction to “The 9 Deadly Small Business Bookkeeping Sins… And How You Can Avoid Them”
Stay tuned for ‘Deadly Sin #4 ‘ coming soon to our Cashflow Manager blog!