Income
Different types of income should be kept separate / categorised in your accounts. For example a business may have the following types of income:-
- Sales – money received from customers in the course of providing it’s service
- Interest – interest received from the bank
- Grants – grants received
Track them separately in your bookkeeping software because you will need to differentiate between them when it comes to filing a tax return to make sure that the right income goes in the right box. e.g. bank interest received is assessed in the main return not in the self employed supplementary page.
Remember that because you are using cash basis the date that you will use in your accounts is the date that you received the money. Example, you do some work for someone on 10th June but they do not pay you until 1st July – the date you will use is 1st July.
Expenses
As with income you should categorise your expenditure because you may need to differentiate between the different types for your tax return. A very small gardening business may have the following types of expenses:-
- Materials – items used up on jobs such as soil, compost, plants
- Vehicle – a van and associated costs
- Insurance – public liability
- Office – phone, stationery, etc
- Clothing – protective clothing (you cannot claim for everyday clothing)
- Advertising – business cards, flyers, a website
- Tools – items such as a spade, wheelbarrow
Remember that because you are using cash basis the date that you will use in your accounts is the date that you paid the money. Example, you receive your phone bill on 10th June and pay it on 1st July – the date you will use is the 1st July.
HMRC allows you to claim simplified expenses for some items – more on that in another post.
Personal Use
You can only claim an expense if it is incurred wholly and exclusively for the purposes of the business. This means that if you have expenses that are only partly incurred for business purposes then you can only claim for the business use proportion.
ALL PERSONAL USE EXPENSES ARE DISALLOWED.
Capital Expenditure
Capital expenditure is expenditure incurred to purchase fixed assets / longer life items such as machinery, computers & vehicles. With cash basis you can claim capital expenditure as an expense as long as it’s not a disallowed item. Example:-
Laptop cost £500 50% personal use 50% business use – you can claim £250 as an expense
If the item was sold on at a later date the proceeds would be recorded into the business as income. Note too that if, after claiming the expense, there was a material increase in the amount of personal use an adjustment would be needed.
More on vehicle expenses in the following post.