Lockdown was a very difficult time for all of us, but if you’re someone who used your time to follow your dreams and start your own business, you might now be getting to a point where you need to know what the next steps are. Do you have to pay tax? Can you put some purchases down as expenses? Are you making a profit?
All these questions will have likely crossed your mind as you begin to progress. We’re here to help!
Step One: Your Bookkeeping
No matter the number of sales you have or how many purchases you may be making to keep your business running, it’s important that you keep a note of every sale and purchase you make.
Ideally, we’d recommend setting up a separate bank account for all transactions related to your business. This can be either a personal or business account as long as it is separate from your usual account.
Any money you make should be noted somewhere for you to refer back to.
Any item you purchase that is necessary for your business, or assists your business in some way should also be noted along with a receipt or invoice for the purchase. For example, if you’re an artist then you need canvases and paints in order to create items to sell. If you’re a hairdresser, you need hair products and equipment in order to fulfill your clients needs.
It is a good idea to begin separating these purchases into categories too. This will help you further down the line when you need to do a self-assessment form (don’t worry, we’ll talk about that soon!)
Let’s stick with the artist example for now. If you do painting, you require paintbrushes, paints and a canvas in order to do your job and create your items for sale, therefore these would be considered “Direct Expenses”.
But you may like to have a website to advertise your works and need to pay someone to make this for you, or need to pay for the domain for your website. This would more likely be considered to be an “Advertising and Marketing” overhead expense, as it’s not absolutely necessary for you to be able to do your job (direct expense), but is still necessary for your business.
How do I keep track of all of this?!
In the beginning, the easiest way for you to keep track of this would likely be a spreadsheet (using either Microsoft Excel, Google Sheets or another similar program. Or hand-written if you are unable to access an IT program).
You will need a column for the date of the transaction, a description of who the money is going to or coming from and the amount of money. It would also be useful (though not necessary) to note down the category.
Make sure to keep all of your receipts! If you receive email invoices (like from Amazon) then consider making yourself a folder in your email account to put these to keep them all in one place.
Apps That Will Help You:
Once you’re ready, using an accounting software will make this entire process easier. Whilst there are many out there, we recommend Xero as the best software for your bookkeeping for its efficiency, ease of use and the fact that you can keep everything in one place. It also can be accessed from anywhere, including a mobile, so if you’re away and need to do some bookkeeping, you are able to.
There are a few different packages, but the basic starts out at around £10 a month.
Using Xero means that you can connect your bank accounts (including payment systems like Paypal) to it and it will automatically pull through your bank feed which means you simply need to reconcile the “Who”, “What” and “Why?”. I.e. Who: Amazon, What: Direct Expenses, Why: Paint Supplies.
If you find yourself receiving a lot of invoices or receipts, it might be worth your while to check out Dext Prepare.
Dext Prepare is a fantastic software that allows you to upload documentation and paperwork via phone app or email forwarding options. When doing this, you keep all of your ‘paperwork’ in your own virtual filing cabinet that keeps everything online,in one place and accessible from anywhere!
Dext Prepare also integrates with Xero, meaning you can push through your invoice to the correct transaction and reconcile your bank even more quickly and precisely.
If either Xero or Dext sounds like something you’d like to look into, feel free to book a Discovery Call with us so we can answer any questions. We also offer bespoke training to get you up-to-speed with how to use Xero and/or Dext.
Step Two: Self-Assessment Forms and Taxes
Once you are making a profit, you will need to bear in mind that you might be paying some taxes at the end of the year. It’s sensible to set up a savings account that you can begin to put 20% of your sales into so that if you do need to pay tax later on, you already have enough to cover it and you’re not scrambling to make that money.
You will need to set up as a Sole Trader if you earned more than £1000 from self-employment between 6 April 2020 and 5 April 2021.
This is a simple process that you can do through Gov UK. The page linked will talk you through all of your responsibilities and how to set yourself up.
Other Things To Consider…
As you’re just starting off, you won’t need to worry about being VAT registered right away. However, you should be aware that you must register for VAT if your turnover is over £85,000.
You don’t have to wait to hit this milestone to apply to be VAT registered, you can register voluntarily if it suits your business, for example if you sell to other VAT-registered business and want to reclaim the VAT.
Keep an eye out for a blog post coming soon that will tell you all about VAT and what you need to know!
If you have any small questions or queries that you don’t feel are appropriate for a discovery call, please feel free to email us on: