Keeping good accounting records can seem like a daunting task for any contractor. It can take time to get your records in order and can result in a lot of unnecessary stress. Here are some top tips on how to keep good accounting records.
Start from the beginning
It is vital that you keep accurate accounting records in order to be successful. If you have good systems in place from the beginning it could save you a lot of time and stress. You will also be able to see exactly what your financial situation is any time you need to, allowing for better planning for the future. If you’re way past the point of the beginning, that’s fine, it’s never too late to start.
Store you accounting records digitally
It is important to keep records for the correct amount of time. If HMRC were to investigate you they could go back as far as six years. It is a good idea to keep these records digitally and to back up these records. Most accounting software packages will allow you to do this.
Using a cloud-based accounting package is a good idea as they allow you to track and submit your expenses on the go from your mobile or tablet. You can store all your receipts and bills online so there is no risk of losing them. Once all of your transactions are on a cloud accounting platform or software they can be reconciled and categorized to make your life easier, and any potential audits much smoother.
What records should I keep?
It can be confusing to know which records contractors should keep, especially when you’ve got so much else going on in your daily life. You should, at a minimum keep the following records.
You should keep a copy of all invoices sent out to clients. They should all include a date and an invoice number. They can be hard copies or digital copies, either scanned or photographed uploads or digital PDF documents.
Keep all of the supplier invoices you receive. These can be for anything from computers, accountancy fees, memberships, subscriptions and office equipment.
You should keep all receipts for day to day expenses such as travel and subsidence. If you run a car or van for the work required, you should also keep a mileage log.
Save for your tax bill
Since you’re self-employed you will be responsible for filing and paying your own taxes. The easiest way to do this is to hire an accountant to do it for you. All you will have to do is give them your financial records and they can even do the bookkeeping for you.
Regardless of whether you use an accountant or do the processes yourself, you should always set some of your income aside for relevant contractor tax rates.
Contractor tax rates
|Tax Band||2017/18 Income||2016/17 Income||Tax Rate|
|Basic||£0 – £33,500||£0 – £32,000||20%|
|Higher||£33,501 – £150,000||£32,001 – £150,000||40%|
|Additional||£150,000 +||£150,000 +||45%|