Managing business expenses
Keeping purchase invoices, otherwise simply known as receipts, is an integral part of the bookkeeping process for any business. For small businesses, effectively managing business receipts plays a key part in properly tracking expenses and streamlining their financial admin.
Without proper management, you run the risk of losing or misplacing paper or electronic receipts which will make it difficult to conduct accurate cash flow forecasting, set effective business budgets and manage business and employee expenses.
Taking the time to build an effective system for managing your business receipts will also enable you to deduct allowable expenses from your tax return and avoid getting into hot water with HMRC in the event of a tax audit.
How long do you have to keep expense receipts?
For limited companies, six years. Yes – 72 long months. The self-employed (sole traders) have it slightly easier – they must keep their records for at least 5 years after the 31 January submission deadline of the relevant tax year.
This lengthy period is for HMRC’s benefit, rather than yours. HMRC can choose to investigate your accounts up to six years in the past, and if they decide to come calling you must be able to back up every expense claim you made during that period.
What is the best way to store records?
As anyone who has ever held a rail season ticket will know, printed receipts are fragile things. Even a few weeks nestled at the bottom of a wallet is enough to render most illegible. If you’re a business that generates plenty of expenses, six years of records is a serious amount of paperwork too.
For these reasons – and many more – it’s a much better idea to scan your receipts and back them up online. HMRC even encourage businesses to keep their records digitally these days:
HMRC recommend you keep all the original documents you receive.
This does not mean you need to keep them on paper. Most records can be scanned and kept electronically on a computer or a storage device such as a CD or memory stick.
It’s also important to make sure you scan the reverse side of any receipt that also has information on it – many shops print double-sided receipts. You should also make sure you can access the digital copies easily should HMRC request them. There are a few exceptions to the electronic storage rule though:
HMRC asks you to keep the original documents which show you’ve had tax deducted. For example, if you’re an employee your P60 form from your employer (which shows your pay and tax information for the tax year).
It’s also worth noting that “scanned” does not necessarily mean you need to invest in a scanner – as long as all the information is legible a photo from your smartphone is perfectly acceptable.
The coming of digital receipts
How many businesses still have a box marked with years to keep thousands of receipts? Despite the advancements in technology, the answer is ‘many’. While some do it out of habit, there are those who do it because they aren’t sure if digital receipts will be accepted by the HMRC in the event of an audit.
Automations options are already here. See another of our blogs on Automating Data Entry of receipts bills and invoices.
Two quick points to make.
- HMRC do accept digital copies of receipts.
- The most important thing for HMRC is that receipts are legible, and whilst digital receipts keep their form, paper receipts fade over time.
In fact, HMRC’s Making Tax Digital plans involve getting small businesses and the self-employed to complete digital tax records and returns, with the eventual aim of going completely paperless.
HMRC already introduced the personal tax account in 2015, which is a digital tax account that aims to make it easier for people to manage their tax affairs. Then came the first phase of MTD in 2019 – Making Tax Digital for VAT. This involves keeping digital records and using accounting software to complete VAT tax returns.
Eventually, keeping paper records won’t meet the requirements of tax legislation.
Here are the HMRC’s Making Tax Digital deadlines:
April 2019: VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 need to keep digital records and submit digital VAT returns using compatible software. Some ‘more complex’ businesses were given a six-month deferral (read more below)
October 2019: more complex businesses who were deferred need to comply with Making Tax Digital
April 2022: MTD will be compulsory for businesses with a turnover below the £85,000 VAT threshold
April 2023: MTD will apply to taxpayers who file Income Tax Self Assessments for business or property income of more than £10,000 a year
What digital solutions to use?
We highly recommend using a cloud accounting software for your business. It allows you to attach scanned receipts to your transactions and makes it easier for checking as everything is in one place.
Going one step further, there are also dedicated receipt processing services which link to the cloud accounting software . One of them is Hubdoc, which is free if you are using Xero Accounting software.
Xero and Hubdoc
Hubdoc and Xero together make bookkeeping and managing business expenses seamless. At Libabun Accountancy we use Xero and Hubdoc apps for so many reasons. Among our top reasons are:
- You don’t need to pay a separate subscription fees for your Cloud Accountancy software and data capture tool. Hubdoc is included in Xero Starter, Standard, and Premium plans. (usually £15/month) for free!
- You don’t have to be chained to your desk, especially as Hubdoc enables you to capture data using your desktop, mobile device, email and scanner. Freedom to be wherever you want, and still be in control
- Documents that are uploaded to Hubdoc have their key data extracted and seamlessly synced to Xero, as accurately coded transactions. Dramatically reducing human errors, and Hubdoc’s accuracy is always improving!
- Once uploaded, the key information is automatically extracted and ready to publish to Xero with the original bill or receipt attached.
- You can experience that satisfaction of one-click reconciliation! Xero matches transactions to the bank feed enabling one-click reconciliation.
If you have questions about this topic, please give us a call on +44 07828 580251.
How Libabun Accountancy can help your business?
We use XERO Accounting Application to record all your sales and bills which are readily accessible wherever you are in the world. You can even access them via Smartphone. You no longer need to worry about missing receipts or unrecorded expenses as we use Hubdoc to capture ALL your bills and expenses. Applications are also accessible using your Smart Phone.
Libabun Accountancy is part of Libabun Business Services Agency. We provide Small Businesses assurance, autonomy and abundance.
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