What tips do you use to keep up your confidence? Why not leave a comment or hit us up on twitter to let us know? And have a great weekend!

So in this guide, we'll walk you through the basics of recording, claiming, managing, and storing your business expenses.

What are expenses?

“Expenses” are business costs that you pay for yourself, which the business may later reimburse you for. Examples would be if you used a personal credit card to buy a train ticket to go and visit your client, or if you bought a stamp at the post office and paid with your own cash. The long name for expenses is “out-of-pocket expenses”.

Record your expenses daily

The best time to record an expense is as soon as you spend the money - whenever possible, take two minutes out of your day to record expenses on the go. For example, if you’re waiting on the train platform, use those two minutes of downtime to snap a photo of your train ticket on your mobile and upload it with your expense entry to an online accounting system like FreeAgent.

Review your expenses weekly

At FreeAgent, we believe that spending just one hour a week on your business’s bookkeeping gives you a real head start towards keeping your finances in good order. Try using our weekly checklist method to stay on top of any expenses that you haven’t already recorded, and to stay on top of how much is going in and out of your business.

Consider storing your receipts online

You may be surprised to know that you don’t have to keep that big folder of receipts - HMRC say that they are happy for business owners to store expense receipts electronically, so long as the electronic copy includes both the front and back of any receipts that have information on the back, such as terms and conditions. For digital storage options, consider using a service like Depositit.

You can also upload your receipts to an online accounting system like FreeAgent and attach them to your accounting entries. This doesn’t just save you space, it also makes it easier to trace back the receipt to the entry in your accounts if you, your accountant, or HMRC has a query on that transaction. 

Keep expenses separate from other costs

When you’re recording expenses, it’s really important to keep these separate from costs that were paid for through your business’s bank account. For example, if you pay for a train ticket on your business debit card rather than your personal credit card, remember that this cost would need to be recorded as paid by the business rather than by you. It’s not an out-of-pocket expense, because the business paid for it directly.

This may sound like extra hassle that you don’t need, but it is important because if your records are ever inspected by HMRC, the first thing they will look for is whether what your accounts say is in the bank matches what actually is in the bank. If you’ve put costs in the wrong place, these figures won’t match.

It’s also important because sometimes you have to report these figures differently for tax, for example if you are the director of a limited company and you have to report your expenses to HMRC on form P11D.

Make sure your categories are consistent

It’s harder to make informed business decisions if you don’t post your costs consistently into the same category in your accounts. For example, if you put your car park ticket charge into “travel” one month and “motor expenses” the next, it’s much harder to see whether your car parking costs are mounting up higher than you want them to be and if it’s time to switch to travelling by train, bus or bike. 

Try printing out a cheat sheet for any expenses that you might not remember where they go, and keep it handy when you’re processing expenses.

Taking the time to set up a good system and then just dedicating just a few minutes a day can go a long way to making your expenses much easier to manage.

So if credit control is something that you’re finding problematic, you may be interested in the newest addition to our growing community of apps and integrations here at FreeAgent.

It’s called LedgerLive, and it’s a neat credit control tool that connects your FreeAgent account with a risk and payments database. Essentially, it helps you prioritise your credit control, see who is sticking to your credit terms and alert you if any of your customers’ risk ratings deteriorate; which is pretty handy info for any small businesses to know.

To mark our integration, here’s three useful tips to help you save time and hassle when it comes to credit control - and a brief description of how LedgerLive can make things easier.

1: Prioritise which customers need chasing for payment.

Could any of your customers be struggling to pay? And do you think you could do anything about it? LedgerLive ranks all your customers based on how much they currently owe and their risk profile so you can see the total “riskiness”of those outstanding invoices and, more importantly, identify where to spend your credit control time.

2: Tighten your credit terms for selective customers.

Are your customers paying you on time? Do they pay other suppliers more promptly than you? LedgerLive shows you how quickly your customers pay you compared to other suppliers. If any of your customers are being a bit laissez-faire when it comes to your invoices, LedgerLive will let you know.

3: Don’t go down with a sinking ship.

Are any of your customers is at risk of going bust? LedgerLive monitors all your customers and will you send an alert if someone suddenly has a change in risk rating. Imagine the scenario: a big client owes you a lot of money and their risk rating suddenly takes a nosedive. Don’t let the problem get any bigger. Act quickly to pause any current work and renegotiate payment terms, plus get on the phone and chase outstanding money in.

Entertaining people can be a very enjoyable part of being in business - as sharing time, food and drink away from the office can help to build and cement working relationships. But when can you claim tax relief on the cost of entertaining someone, and what about VAT?

Here are a few important things to bear in mind when it comes to tax and VAT on entertaining costs. Please note, in this article the guidance on when VAT can be reclaimed relates only to businesses that are registered for VAT. If your business is not registered for VAT it cannot reclaim any VAT at all, apart from in certain circumstances when it subsequently registers.

1. Who are your employees?

HMRC only allow tax relief and the claiming of VAT on the cost of entertaining your business’s employees. And they’re very strict about who counts as “an employee”. Former and previous employees don’t qualify, nor do subcontractors, nor do shareholders who don’t work in the business. From experience, “an employee” has to be someone who is on your business’s payroll and being paid a salary.

If you’re entertaining anyone else, that counts as “business entertaining” rather than staff entertaining, and you can’t claim either tax relief or VAT on the cost of entertaining them.

For what happens when a business has salaried directors, but no employees, please see section 5 below.

If you’re a sole trader, or a partner in a partnership or LLP, remember that you don’t count as an employee because legally there’s no difference between you and the business, and therefore, you can’t claim tax relief or VAT on the cost of entertaining yourself.

2. What is entertaining?

HMRC say that “entertaining” is providing free or subsidised hospitality. Here are examples they give of what can count as “entertaining” - this list is not exhaustive:

• food and drink
• accommodation - eg hotels
• theatre and concert tickets
• sporting events and facilities
• entry to clubs and nightclubs
• use of capital assets such as yachts and aircraft
• payments made to third party business entertainment organisers
• free samples
• business gifts
• when you provide entertainment or hospitality only for the directors or partners of your business 

We’ll look at the last point in more detail in section 5 below.

3. Entertaining employees: Benefit

When you’re entertaining your employees, this may be allowable for tax relief in your business’s accounts, but it could also be a benefit on which your employees have to pay some tax.

If you’re hosting an annual event, such as a summer boat trip or Christmas party, that’s open to all staff and costs less than £150 per guest present, then this is what HMRC call a “qualifying event” and will not be a taxable benefit for your staff.

But if any of these three conditions aren’t met, then the whole cost of the event becomes a taxable benefit - for example if it’s a one-off meal to celebrate a new contract, or if some employees are excluded, or if the cost per head is over £150.

4. Entertaining employees: VAT

The cost of entertaining employees as a reward for good work, or to keep up morale, is staff entertaining, which is allowable for tax relief and on which you can reclaim any VAT you pay.

But if your employees are acting as hosts to a group of customers at an event, then that then counts as business entertaining and there’s no tax relief or VAT deduction available on any of the cost of the event.

For tax relief and VAT reclaim to be allowed, the purpose of the event has to be to entertain employees.

If there’s an event with a mixed group and the purpose of the event is to entertain everyone equally, then you can claim back the VAT on the cost of entertaining your employees only. For example, if you have a staff Christmas party and allow your employees to bring a friend, you’d have to work out the amount of VAT you paid on the cost of entertaining your employees and only claim that. You can’t claim the VAT on the cost of entertaining their friends.

5. When your business has no employees other than directors

If your business has one or more directors, but no other employees, then the issue becomes more difficult.

HMRC say that the cost of providing entertainment only to directors or partners doesn’t qualify for tax relief or a VAT deduction.

But they also say that if the directors or partners are travelling “away from their normal place of work on a business trip”, then any VAT suffered on the cost of travel, accommodation and meals can be reclaimed. The rules for tax relief would mirror this, and this also applies to employees, sole traders, partners, and to subcontractors who are part of the team and treated like employees.

So if you want to have a celebration meal for two directors who are the only employees of the business, make sure that the meal takes place away from the usual place of work and as part of a business trip which the directors would have made anyway, for example to see a client!

This is a grey area so if you are not sure whether you can claim tax relief or reclaim VAT on a particular cost, you should seek professional advice from an accountant who will be able to advise you.

Expenses month series:

• Working from home expenses
• Travel and accommodation expenses
• Entertaining expenses

What makes you feel satisfied with your work? Hit us up on twitter or leave a comment and let us know. And have a great weekend!

Our Chief Accountant Emily has been hard at work and has created this handy infographic for UK limited companies and sole traders, which explains whether or not they can claim for their lunch when they're out on business. Judging by the questions we've received during our recent live expenses Q&A sessions, it's an issue that many people find confusing - so we hope that this guide will provide a little bit of clarity!

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Just copy and paste the code below onto your site:

<p> <a href="http://www.freeagent.com/l/food-and-drink-expenses-travel"> <img src="http://freeagent-assets.s3.amazonaws.com/website/images/site-assets/landing/lunch.600.png"> </a> </p> <p style="align: center; font-family: helvetica, arial;" > View the full image at <a href="http://www.freeagent.com/l/food-and-drink-expenses-travel&utm_campaign=expenses&utm_medium=infographic&utm_term=food-and-drink">FreeAgent</a> </p> ]]> Thu, 16 May 2013 16:44:28 +0100 http://www.freeagent.com/central/lunch-on-the-go-infographic FreeAgent Central http://www.freeagent.com/central/lord-young-report Lord Young, enterprise adviser to the government, has recently published the second phase of his report into small business. This time he looks at Growing Your Business.

In summary, he’s recommending increased support to help small businesses grow:

• A “Supporting Small Business Charter” to encourage business schools to target the area of SME growth.
• A £30 million “Growth Vouchers” programme, aimed at helping small and micro businesses to get professional help.
• An increased £30 million funding for the Start-Up Loans scheme, with a recommendation that the current upper age limit of 30 on this scheme be removed.
• More funding for SMEs in their third year looking for money to grow, and an extra £100 million funding to be made available through the Business Finance Partnership, which promotes alternative finance sources such as crowdfunding.

I’d like to pick up on three points in the report.

1. Growth through simplification?

Lord Young points out, “Within the micro business population itself growth has been driven predominantly by businesses without employees.”

Drawing attention to the perceived complexity of the recruitment process - and to the fear many business owners have of recruiting the “wrong” employee, costing them and their business a lot of time and money - he says: “The actual employment process should be simplified. We need to ensure that employers can complete the actions required of them more seamlessly.”

He’s absolutely right. To me, the key to business growth is simplification of the myriad legislative processes involved. Employment, HR, tax, all are hopelessly complicated, and contribute to why many businesses choose to stay small - so making these simpler would be a great boost to the small business sector.

However, I would also hope that these changes are not rushed and that all of the implications are properly considered - to ensure that by simplifying one aspect of running a small business they don’t inadvertently make things more difficult elsewhere!

2. Growth Vouchers: what will the model be?

The report makes a proposal for a £30 million Growth Voucher scheme, but also mentions that the model for this has not been finalised. So it's not yet clear if these vouchers would actually allow small business owners to redeem their value on professional services such as accounting (which is an idea that our good friend Elaine Clark at Cheap Accounting talks about on her blog).

I wholeheartedly agree that small business owners should be encouraged to seek professional help and guidance, given the complexity of the legal framework in which they are operating. A voucher scheme would help with this, however, the quality of the providers would need to be vetted.

I am also concerned that Lord Young wants private firms to set up websites providing “advice and inspiration to help people start and develop their businesses.” My concern here is that this could lead to an enormous and disjointed collection of websites, with business owners confused as to which one to choose. I would have preferred a centrally managed and operated service with funded advice from vetted professionals. 

3. Start-Up Loans: no age limit is positive

I agree with Lord Young’s recommendation that the Start-Up Loans scheme should be open to anyone of any age who wishes to start a business. Many people over the current age limit of 30 have ambitions to start a business but do not have the money to spare. They may have better-paid jobs than their younger counterparts but are also more likely to have mortgages to pay and children to support, so they cannot simply walk away from a well-paid job

Opening the Start-Up Loans initiative to potential business owners of any age would be a very positive move.

From my perspective, Lord Young’s report has a lot to commend it and I hope that the government will heed his recommendations and act upon them.

]]> Tue, 14 May 2013 14:49:07 +0100 http://www.freeagent.com/central/lord-young-report FreeAgent Central http://www.freeagent.com/central/travel-and-accommodation-expenses It’s Expenses Month here at FreeAgent, and we’ll be posting lots of useful information about managing and claiming your expenses throughout the rest of May. In the second article of her expenses series, our Chief Accountant Emily talks you through claiming the costs of travel and accommodation for your business. 

Are you self-employed and have to regularly travel for your business? And does this travelling ever involve an overnight stay away from your home?

If the answer is yes, then there's good news - you may be able to claim some of these costs back. Here's a few tips for working out which travel and accommodation costs you can include in your business’s accounts. 

1. Reason for the journey

Before you can claim for travel or accommodation, you need to consider why you made the journey in the first place. Was it just for business, such as to visit a client, or to pick up your new business cards?

Or was there a private element to your travel? For example, did you stop on your way home from a client meeting to do your weekly shop or another non-work-related chore?

Before you can work out if you can claim for your travel, you need to establish what the primary purpose of the journey was. If it was mixed (i.e. for both business and private), then you need to look at whether you can split the business element from the private part of the journey.

Let’s look at some examples.

Business journey: incidental private use

If your journey was primarily for business, and any private use of the journey was incidental, you can put the full cost of this travel into your business accounts.

Simon is a web designer. He travels by train from his home in Birmingham to visit a client in Brighton. While he is there, he has a walk by the sea.

The purpose of Simon’s journey to Brighton was for business. The private element, his walk by the sea, was purely incidental. Simon therefore claims the full cost of his train ticket in his accounts.

Mixed journey: different uses separable

If your journey included both business and private elements, but you can split out the private element, then you would include only the business cost in your accounts.

Jessica is a business consultant. She lives in Glasgow but has several clients who are based in Manchester. She travels to Manchester and stays there for two nights in order to attend meetings with her clients. She then decides to extend her stay to three nights so that she can attend a Premiership football match. Doing this costs her one night’s extra hotel bill and £50 in fees to change her train ticket.

The purpose of Jessica’s journey was to visit clients. She can claim the full cost of her train ticket but she cannot claim the £50 in fees to change the ticket, because she only had to do that in order to see the show, which is not a business expense.

She can also only claim two nights’ worth of hotel accommodation, not three, because the third night’s stay was for a personal purpose.

Mixed journey: no separation possible

If your journey is for mixed purposes, and you can’t split out the business and personal elements, then you can’t claim any of the cost of that journey.

Tom runs a microbrewery. He travels to his local town to bank his business takings and to do the weekly supermarket shop for his family. Because that journey was for mixed purposes, and because he can’t split the cost into business and private, Tom must not include any costs for this journey in her business’s accounts.

2. Use of your own car

When you’re self-employed you will often travel in your own car on business.

The simpler way to do this is to include your business mileage in your accounts, at HM Revenue’s approved rates. If you’ve already been doing this for some years, you must continue to use this method until you change your car. If your business is new, then as from 6th April 2013 you can use this method if your annual sales are under the current VAT limit, which is £79,000 at the moment.

Otherwise you’ll need to work out your car running costs and claim a percentage of them in your accounts, based on how much you used your car for business and how much was private. This means you have to track the mileage you travelled for all your journeys, so that you can work out the business use percentage of your car.

This second method will take longer but may save you tax if you have a car that’s comparatively expensive to run.

3. Method of transport

HM Revenue don’t require you to use the cheapest available method of transport – or even to claim only the amount that the cheapest method would have cost you. You can claim the full amount you spent on the journey.

Let’s take an example.

Elizabeth is a self-employed PR consultant working in London. She travels to Edinburgh to visit a client.

To make this journey by overnight coach would cost her £35, to go by train would be £90 standard class or £160 first class, and to fly would cost her £80.

Elizabeth decides to save time and fly.

She can claim the full £80. She’s not restricted to claiming only £35 because there would have been a cheaper way she could have reached Edinburgh.

The main issue with travel and accommodation is to make sure you’re certain that the only costs you’re including in your accounts are for business travel.  And remember - if you are in any doubt about what you can and can’t claim, you should seek professional advice from an accountant who will be able to advise you.

Expenses month series:

• Working from home expenses
• Travel and accommodation expenses
• Entertaining expenses

]]> Mon, 13 May 2013 17:01:30 +0100 http://www.freeagent.com/central/travel-and-accommodation-expenses FreeAgent Central http://www.freeagent.com/central/freeagent-friday-flow-edition After last week’s motivation edition, are you ready to get on with some great work? This week, we’re looking at how you can harness your personal “state of flow” - the state of 100% focus on the task you’re currently doing - and use it to improve your performance while you work.

Understand your flow

Psychologists refer to “flow” as the state of mind achieved when you’re completely immersed in a specific activity. Think of it as the ultra-focused mental nirvana that a top athlete strives to achieve before their big event, where all of their mental and physical skills are working in harmony. This description on About.com is a great resource for understanding the theory of flow and what it feels like to achieve it.

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Be in the moment

Want to achieve flow? Then you may have to start trying to live in the moment rather than worrying about the future. This article from Psychology Today explains how your natural performance can greatly improve when you’re not thinking about it - and suggests that savouring the moment and enjoying the task in hand is the best step towards entering your flow state.

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Eliminate distractions

People achieving their flow state often feel like time passes quicker than usual - as their focussed minds are occupied and are ignoring external distractions. So keep an eye out for those little things that can put you off your game like those Twitter alerts on your phone or that pop-up email notification, and use some creative ways to cut them out of your routine.

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Stick to what you know

When you try something new, it’s impossible to achieve flow. You need your subconscious brain to take over when you’re in the zone, and it gets suppressed when you’re doing something that is unfamiliar. So don’t worry if you’re not feeling in the zone with everything that you do, but still aim to achieve it for those tasks that you know inside out.

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As well as the links above, we’ve also added “Flow” and “Finding Flow” to our Great Business Books Pinterest board. Do you have a great method for getting into the zone? Hit us up on twitter or leave a comment and let us know. And have a great weekend!

]]> Fri, 10 May 2013 14:35:26 +0100 http://www.freeagent.com/central/freeagent-friday-flow-edition FreeAgent Central http://www.freeagent.com/central/national-enterprise-network-partnership Starting a business is a daunting prospect. Without the right knowledge or support, it can be very difficult to establish yourself in your chosen market - and when you’re busting a gut trying to make your new business a success, you don’t need the unwelcome distraction of managing your books to think about.

Thankfully, there are also a lot of local enterprise and not-for-profit agencies across the country that provide vital services for start-up businesses. So if you’re starting out for yourself, you can take advantage of some of the incredibly useful services that these organisations provide, including face-to-face business advice, networking groups, incubator workspace hire, training and mentoring.

Here at FreeAgent, we’re now partnering with one of the biggest UK names in this sector - the National Enterprise Network (NEN) - who are the umbrella organisation that supports these agencies throughout the UK. Basically, if there’s a local business incubator or advice service in your area, the chances are that it’s overseen and supported by the NEN; so it’s a really important organisation for small business owners to know about. Take a peek at their website and, in particular, browse through the member database on their homepage to find out what support is available in your area - it’s really useful stuff to know if you’re starting a business.

You might also like to follow their twitter page to find out more about the work that they do. We can’t wait to get started!

]]> Thu, 09 May 2013 16:12:28 +0100 http://www.freeagent.com/central/national-enterprise-network-partnership FreeAgent Central