Managing your Business Expenses
Expenses are a key part of every business and are something you need to get your head around if you’re going to succeed and become profitable. Understanding what constitutes a business expense can be confusing.
You will meet some small business people who say things like ‘I can claim that back off my tax’ and it sounds quite exciting whereas in reality there is more involved than simply ‘claiming it back’.
What is a Business Expense?
A business expense is anything which benefits your business in terms of profit, from a purely tax-related perspective. This can mean anything from travelling to a client’s office to the printing costs incurred when producing advertising materials. These types of expense are tax-deductible which means it will be removed from your total profits at the end of the financial year.
There are other costs including things such as lunches provided for the staff or particular pieces of equipment which aren’t tax deductible but are still classes as expenses and should be recorded and monitored to ensure cash flow remains in check.
From a travel perspective your travel to and from work is not tax deductible but if you have to travel out of your way on company business than 40p per mile can be claimed, if you’re using your own car.
The majority of expenses for your business will be classed as tax deductible as long as they’re reasonable. If you or your staff have to stay overnight and use a hotel, this can be deducted as long as you opt for a reasonably priced option and the same for food and drink needed during business trips away. If you’re choosing not to work with an accountant for your company then you will need to keep track of every one of the receipts and store them safely so when the tax return does come around – you have everything to hand to sort it out.
Tracking your Expenses
Managing your expenses is reliant on keeping track. You need to keep all receipts and invoices as mentioned above and you should also try and tally costs on a daily basis where possible. If not, set aside a morning or afternoon a week to dedicate to checking the organisation of your files and costs.
If you have employees who are allowed to claim expenses, surely a luxury for any self-employed mum or dad, then you should provide expenses claim forms which can be filled in alongside invoices – ensuring your paper trail is kept complete.
Comprehensive records mean you are prepared when the tax year ends and you have to prepare your return. It is also a legal requirement to keep all your records on file for six years prior to the end of the tax year.
As a small business owner or work at home mum or dad there’s no need to go out and buy the most expensive accounting package. You could use Microsoft Excel if you have the Office Suite or you could opt for a standard, non-computerised cashbook. There are many affordable accounting packages and free options too including Brightbook which we’ve reviewed in the past.
Choosing a system that works for you is the best option because the more organised you are the better the whole tax and accounting experience will be.
Unless your business is in the financial sector it’s very unlikely you enjoy doing your accounts but it is essential. Business expenses give you the chance to optimise your profits and ensure you’re entering the right amount into your tax return and not paying more tax than you owe.