Business expense management is like broccoli. While it's hardly the most exciting thing ever, it's good for you. Here are some tips for keeping track of business expenses.
Business expense management tips
Keeping track of your business expenses is crucial. It allows you to:
- Get an accurate picture of your business' financial health
- Claim all your business expenses on your self-assessment tax return
- Lower your tax bill as much as possible
Most of all, though, it can save your bacon. HMRC may decide to audit you. And having accurately tracked expenses will help prove you've done everything right.
Here's a look at HMRC's rules on expense tracking. We'll also show you five tips to make business expense management easier.
Can the HMRC check my expense records?
HMRC used to conduct random business records checks. And you risked up to £3,000 in fines if you had inadequate records.
HMRC discontinued the checks in October 2015. But they can still audit you if something doesn't look right. Your records could make the difference between passing with flying colours or getting into trouble.
For this reason, it's important to make sure you:
- Track everything you spend in your business accurately
- Keep it organised
- Store everything somewhere safe
What are HMRC's rules on expense tracking?
The HMRC requires you to:
- Keep a record of all your allowable business expenses
- Store all original documents, such as invoices and receipts, for at least five years
You can keep your receipts in a shoebox, or invest in expensive accounting software. This is up to you. That said, your records must be:
Business expense management: 5 tips for easier expense tracking
If you have a good system in place, keeping track of your expenses shouldn't be too much work. Here are five tips to make it as effortless as possible.
Tip 1: Open a separate bank account
Partnerships and limited liability companies must have a separate business bank account. But it's a good idea to have one even if you're a sole trader. This avoids mixing your business and personal expenses. Which means you won't have to separate hundreds of transactions by hand.
Tip 2: Invest in accounting software
You can record your income and expenses in an excel spreadsheet or physical ledger. However, cloud-based accounting software can make your life much easier. At the very least, you'll be able to:
- Connect your business bank account
- Automatically import and categorise transactions
- Issue and store invoices
- Upload photos of your receipts and store them electronically
Tip 3: Use expense tracking apps
Tracking expenses isn't always as easy as making a purchase and keeping the receipt. Sometimes you need to track in real time, for instance when you're logging your business miles.
Here, using an expense tracking app makes sense, because it eliminates human error. You can then send your reports to your accounting software electronically.
Tip 4: Keep a backup
While it might be unlikely, there's always a chance you could lose the data on your accounting software. So it's a good idea to keep a backup just in case.
Receipts can become illegible fast, so an electronic backup is usually best. This is as easy as uploading photos to Microsoft OneDrive or Dropbox. Just make sure everything is easy to read. You could also keep a local folder on your hard drive.
Tip 5: Do little and often
It's tempting to leave sorting your expenses to the last minute. But it's usually much less work if you do it a little at a time. For best results, set aside one day a month to upload your receipts, create expense reports and reconcile everything with your bank account. This will keep the workload manageable and ensure you're always up to date.
