Staying organised and record keeping

It’s really important that you keep hold of your receipts and invoices for your business so that you can justify the expenditure, should HMRC (or anyone else) require it.

We will assume that you have retained all the receipts relating to the expenditure on the account and will not ask to see this unless there are some particularly unusual transactions.

Staying organised with receipts and paperwork

In order to stay organised with your receipts you may want to try one of the following methods for retaining your records. Clearly if you have a system that works better for you then by all means use that. The important thing is to take an hour or so to get your system set up from the start to allow you to consistently stick to it.

• Dedicated data capture software: These are brilliant online apps that you email, photograph on your phone or upload to. They extract the data using their clever algorithms, and then send the data, and the file to your accounting software. We recommend using Hubdoc if you are a Xero user (free with Xero!), or Dext, if you are a FreeAgent user. Contact us if you want more information
• Phone based scanning app: As you receive receipts, scan/photograph them and save either on your phone or on a cloud based storage solution such as Dropbox or Google Drive. We like CamScanner on Android but you may have other apps that you prefer
• “Brown Envelope Method”: This method is not greatly recommended, but it will help those people who struggle a bit with organisation and need some support. At the start of each accounting year, place a large brown envelope in strategically placed locations, such as in your car, van, where you open the post. You may want this is several locations – wherever you spend money or receive receipts.
  Every time you receive a receipt simply pop it in one of the envelopes. At the end of the year gather up all your envelopes and hey presto you have all your records for the year.
• “Alternative Email Method”: This goes hand in hand with the two methods above. Set yourself up with a new, free email account (Gmail, yahoo, Hotmail or whichever provider you prefer). Every time you receive an email with a receipt or invoice simply hit “Forward” and send it to this account. Use the account for nothing else. Again, you will have all your receipts.

Expenses

Where you pay for goods or services personally on behalf of your company you may be able to reimburse yourself from the company, in the same way as if you were an employee.

To do this you need to submit to the company an expenses form and corresponding receipts where required. FreeAgent has a form built in to do this. The key thing is that your expenses are documented

Dividends

It is really important that you are clear about what dividends are. They are the payment of profits in your company to its shareholders. You should not mix this up with other ways in which you are paid, such as payroll or expenses. Any payment of dividends should clearly state that it is a dividend in the bank statement (failure to do this could incur a large tax liability).

Your profits are distributed from the company through dividends.

A dividend is the distribution of ‘after tax profits’ so it is essential that the company has made a profit and has made sufficient provision to cover its corporation tax bill.

When you pay a dividend you will need to complete a board minute and dividend voucher. Some example wording can be found here:

https://www.contracteye.co.uk/dividend_vouchers_board_minutes.shtml

Basic rate tax payers will pay income tax of 7.5% on their dividends with higher rate tax payers paying 32.5% and additional rate tax payers (earning over £150,000) paying 38.1%.

If you want to check the income tax that you may owe there is a calculator here:

http://www.contractorcalculator.co.uk/Dividend_Tax_Calculator.aspx

If in doubt please contact us to discuss further.