A 6 step introduction to managing your day-to-day expenses
Keeping on top of expenses can be a big hassle when you're just trying to get on with your work, especially if it's grown into a big pile of unprocessed paperwork! So in this guide, we'll walk you through the basics of recording, claiming, managing, and storing your business expenses.
1. 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".
2. 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.
3. 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.
4. 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.
5. 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 need to make sure the company doesn’t pay you back more than you’ve spent on its costs.
6. 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.
More expenses tips:
- Working from home expenses
- Travel expenses and mileage
- Entertaining expenses
- Clothing expenses
- Scanned receipts and HMRC
Disclaimer: The content included in this guide is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this guide. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.