We are really pleased to introduce Ruth from Business Help and Support Ltd as our first expert. Ruth will be a regular contributor on the blog, demystifying the scary world of book-keeping and tax for us! You can rest assured that Ruth understands all the ups and downs of the baking world as she is also a talented cake decorator.
Ok, so hello *waves*….my name’s Ruth and I’m an accountant….no, no, don’t run off its ok! I’ve been asked to write this blog post to give you some tips and hints on book-keeping and accounts. As an experienced small business owner and BIG fan of cake, I’m going to try and make this as painless as possible.
First Rule of Book-keeping and Accounts
Keep all your receipts
Even if you’re not sure if it’s something that can be set-off against your sales for tax purposes, keep the receipt anyway. I know a lot of you are on Twitter, there’s usually someone out there that is willing to answer a question on whether something is tax deductible or not (that means you can off-set it against your sales). If you’re not on Twitter or can’t find an answer, HMRC has a useful, if somewhat hard to navigate website, or you should ask a friendly accountant.
Second Rule of Book-keeping and Accounts
Don’t leave it all to the last minute
Try to keep some sort of order to your receipts, whether you record all the information in a book, on a spreadsheet or in an accounts program it’s best to have a good sort out every now and then and record the information. This is good for two things, firstly, when it comes to filling in your tax return, the information is all there – no panicking! Secondly, it helps you to see what the business is up to on a financial basis – you’ll be able to see how much your sales come to and how much you’ve spent on ingredients, equipment, general running cost etc. That way, you’ll be able to see if you’re charging enough for your services and products.
Third Rule of Book-keeping and Accounts
Don’t undersell your services and products.
Make sure when you price up for a job that you include not just the ingredients for the cake and the sundry items like cake boards and boxes but also allow the costs of your time and also things like cost of cooking that fruit cake for an hour and a half (running the oven isn’t free). It’s important to get your pricing right from the beginning, it’s easy to reduce your prices to existing customers but hard to raise them (I wish someone had told me this at the beginning)! Remember that you’re trying to run this business so you can earn money, if you undersell your products then you’re not going to be able to pay your bills.
Fourth Rule of Book-keeping and Accounts
Make sure you claim for everything you’re entitled to.
When it comes to your tax return and calculating your tax, you want to make sure that you claim everything you’re entitled to and don’t claim for the things that you’re not entitled to. This is possibly the biggest thing to make sure you get right.
What you can claim
- Mileage – You can claim for mileage, all you have to do is record how many miles you do for business, so when you go to the shop to buy your ingredients – record the miles, the same for when you’re delivering your cakes.
- Use of Home – You can also allocate some of the running costs of your home (if you operate from home), the basics are you can allocate a proportion of the costs based on the numbers of rooms used for business and the number of hours those rooms are used for. This can be a slightly complication calculation and is something I will cover in another blog post another time.
- Telephone and Broadband – you can allocate a proportion of your home telephone and broadband to the business, again this is based on the usage. If you spend 10% of your week on the internet researching recipes, suppliers and other business information, then 10% of the cost can be put to the business – however, don’t forget to take into account any other family members that use the broadband connection.
- Gifts to Clients – Promotion gifts to clients can be set-off against your tax bill provided that the gift costs less than £50 (I know, I wouldn’t that much either) and the gift clearly shows your business logo or name. The gift cannot be food (see entertaining below)
What you can’t claim
- National Insurance Contributions – From my experience, the “thing” that almost everyone tries to put through their books is their National Insurance Contributions. These contributions are your personal expense and although if you weren’t self-employed you wouldn’t have to pay them, they are not an expense of the business.
- Entertaining – You can’t claim for entertaining your clients. You can say that these costs are a cost of running the business but you can’t claim them on your tax return as an allowable cost against tax.
- Food – You also can’t claim for food that either you or your clients have during the day (unless it’s an evening meal for you and you’re on a business trip staying overnight); again you can say that these costs are a cost of running the business but you can’t claim them on your tax return as an allowable cost against tax.
- Childcare – this is a personal cost to allow you to work but is not a business cost.
- Clothing – clothing cannot be claimed against tax, the rules state that you would have to be clothed whether you are working on your business or not. This is along the same principles as food, you’d have to eat during the day anyway whether you’re working or not.
If you’re not sure about any aspects of accounts or book-keeping, you should always consult a friendly and competent accountant. If your tax returns are incorrect you could be fined and ordered to pay any tax resulting from correcting the accounts including interest (yes, it is a little scary).
So that’s it…until next time…I’m off to make a cake and walk the dog – just a few of the benefits of being self-employed.
If there is any accounting related topic that you would like Ruth to write on then do leave a comment below or send us an email at email@example.com