Laurel and Hardy seen here in Norwich, Prince of Wales Road in 1954. Read more in the EDP here. (Photo by kind permission of EDP/Archant)
Well …… yes ……. we all know the phrase from the Masters of Comedy. But does it have to be that way?
If you asked someone to set up and run a charity stall and then calculate any profit, would they be able to do it? They would probably think, ‘If I record, and add up all my takings, and then take off the expenses, that should do it’ …… they would probably be right.
The above may be somewhat over simplified but it’s definitely the way to think when starting out on the road to bookkeeping. From my own experience, it’s largely a state of mind, coupled with a bit of organisation. The state of mind is to accept that, for most people, it’s quite straight forward. There may be a wealth of ‘tax rules’ but most won’t apply, as they deal with, what are often, more unusual situations.
Legal position – you have to do it!
By law you have to keep accurate records or face, what can be hefty fines. However, being in control of your finances is a key business skill, and one that you should want to do any way. Don’t think you are keeping records for the tax man – you are really keeping them so you can be in control and make sound decisions about your business. Without accurate records, you won’t know if you are charging your customers enough, or how much you should be putting away for the tax man.
Get a system in place
There are no rules as to how you keep your records, only that they have to be accurate and have supporting evidence, in respect of invoices and receipts. You could keep paper records, although using current technology makes far more sense. A simple Excel spreadsheet is an excellent way of documenting income and expenditure. We at Nwes can provide you with a spreadsheet that is easy to use and understand. If you earn money, you record it in the ‘Income’ column. If you spend money on, say, stationery, then you record it in the ‘Stationery’ column! – the spreadsheet does the rest! Told you it was easy!
What expenses are allowable?
This is the most common question we at Nwes are asked – in fact, most expenses which are ‘wholly and exclusively’ for business, are allowed. That is to say, they can be subtracted from the income to record the final profit – you are ultimately taxed on your final profit, so knowing what you can and can’t put through is important. This HMRC slide show commentary (webinar) gives excellent guidance. Allowable expenses for the self employed will also be the subject of a future blog
HMRC have also introduced some simplified rules for estimating expenses such as using your home as an office, and using your own car for business.
Other expenses are explained via this link But in the main it’s all based on what is ‘fair and reasonable’ and is much more straightforward than many would think. So, if you keep it simple, have a good system and a tidy desk, you will not experience Laurel and Hardy’s “Another fine mess.”
By the way, my favourite Laurel and Hardy dialogue is when Stan answers the phone, listens for a few seconds, and says, “It sure is”. He then puts down the phone. Oliver then says, “Who was that on the phone?” and Stan replies with “It was someone saying it’s a long distance from Atlanta, Georgia”.
Watch it here and enjoy.
Written by John Clarke, Business Trainer at Nwes
Information correct at time of publication: April 2014