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Sole trader invoice example for Management

hello and welcome to this video in this video we've got three mistakes that if you are a sole trader you need to avoid when doing your own account and bookkeeping watch this video to make sure that you don't lose out on so much needed tax relief hello my name is aaron patrick i'm a charts accountant a certified uk trainer that quickbooks chat on the internet and also head of accounts here at boffix now in today's video we're going to be talking about how you can potentially save some tax if you're thinking about doing your own accounts and bookkeeping now as a sole trader it's a lonely place out there but these videos are designed to give you all of the confidence you need to make sure that you're doing everything correct so if this video has helped you out in any way please do make a like subscribe all that sort of elements just to make sure that you don't miss out on the next video we do which will probably and more likely help you along in the future okay let's jump straight into number one as to those big mistakes that you could possibly be making as a sole trader now one of the more common ones is the difference between capital expenditure versus revenue expenditure and if you're doing it by yourself sometimes you forget the difference or worse of all don't actually appreciate what that difference actually means now first of all what is the difference between the two well revenue expenditure is probably the easiest one to explain it's your day-to-day expenditure if you've gone out and bought something that you need to sell for your business so you actually as a shop or you have anything that you need some cost of sale or something like that then that's typical revenue expenditure also you've got your admin costs as well your telephone bill for the month your travel and cost for the month although sort of expenditure which is happening on a month-by-month basis is typical revenue expense you do have some annual costs as well like maybe insurance and things like that well majority of the time the way to distinguish between revenue and capital is a cost that associates for that individual year whereas a capital cost should be something that's spread over multiple years and you think about from an accounts point of view if you've bought something that's going to last you for say five years or so really you want to show that cost throughout those five years that you have the asset and that's the key between capital and revenue hmrc historically cared a lot about this because what they didn't want you to do is if you bought an asset last five years you got all of that benefit from a tax point of view in that first five years so historically what they didn't want from you is if you went and bought some a new computer for example you could end up taking a large chunk out of your profits in that particular year which basically then means that you could have a lower tax bill now hmrc are really picky on capital versus revenue that's one of their favorite parts they like to look into and at the moment it's a little bit of a mute point because at the moment for most of the clients out there you will be entitled to what's called annual investment allowance which effectively means you get the full cost of that asset at day one but hmrc are not just going to let it slide that you've just accepted that they're all revenue costs they want to see that you've applied that it was a capital cost you've put it into what's called capital allowances and you've claimed that annual investment allowance this is a topic we will cover on this channel so make sure you subscribe but capital allowance versus revenue allowance are so key that we need to make sure we get it right it's also one of those bits where if hmr sees that there's a problem there then they'll start nitpicking at other parts within your accounts so don't give them the chance to do that make sure that if you have a revenue cost so your day-to-day costs that you account for them in your accounts and if you have a capital item so you've gone out there and bought an item that's going to last you for a while something like a computer something like tools and equipment those sort of items you want to make sure you treat as a fixed asset and that way you can avoid that national inquiry from hmrc so number two for me will always be around the fact that you've got to make sure you're keeping the right record not just for your day-to-day bookkeeping account but also for some major significant events that happens within your business a great example of this if you've caused or had a loss in any particular year well if you created a loss and that's something that you can benefit from in future profitable years so you need to be making sure you keep in adequate records so you can track those losses as they go forward also if you do have adequate records that means that when hmrc do start knocking and start inquiring about these particular events you've got all the records you need to make sure they're correct time and time again i've come to do sole trader accounts and found that they've not utilized losses in particular year they've not appreciated all the mess that happens in that first year when you've got those split periods and everything else and that means they've not been able to account for losses and particular periods that you are entitled to when you've come to maybe come to the end of your sole trader journey being a self-traded means you're doing self-assessment which means that hmrc are definitely going to be looking into all of those major events that are going to benefit them they're not necessarily going to be looking into your events they're actually going to make it better for you so just be aware of that and make sure that you've got all your records in place make sure you're keeping a very good tally on anything that could be beneficial to you and that way you can make sure that you are not overpaying your taxes and the third one for me is something that really does great me this is one of those taxes that i wish could be absolutely abolished because it is the one that becomes so painful for small businesses especially at the time of need when they're starting to grow their business and that's the dreaded payment on account now for those not in the know payment account is for when your tax is going to be over one thousand pounds as a sole trader then in them circumstances you may qualify for what's called payment on account now payment account basically means not only do you have to pay for that year's tax but also you have to pay for half of next year's tax than half again in july and you keep on that cycle of having to keep paying half and half in both january and july now from a cash flow point of view sometimes it can be a little bit more beneficial for clients because they're kind of paying and they don't have to worry about the taxes quite as much but on the opposite side of things that first year is one of the most painful parts to being in business that can ever be because not only do you have to pay for that year's tax we'll suddenly have to find half of next year's tax and then half again for the tax going forward and from a cash flow point of view it can be absolute catastrophic to how their business is going now there's two things that you can do about this number one don't get caught out last minute whatever you do always keep in mind that your tax bill of that 31st of january may also include that payment account so if you're saving like i always advise clients to do then always make sure that you've got enough buffer to be account for any payment account that may appear for that as well and number two think about if that payment account is accurate your payment account is going to be automatically calculated for you and it's as simple as taking the current year divided by two and that's going to be what's going to form the basis of your next payment on account hmrc don't have any more information than that but what you can do and what i would recommend you do is just have a look at that next year especially if you've left it towards the end until that 31st of january to make that filing you already should have a really good grasp of it next year is going to be worse or better than the year before and if it's worse it may be worth doing a quick forecast just to have a look and see if there's any way that you could reduce that payment account to make it more aligned to what it actually could be that way you can improve your cash flow if you're having a really barren year and there we are three tips to make sure your business and your sole trader accounts are as accurate as they possibly can be remember being a sole trader is a lonely place so make sure you subscribe to this channel make sure that you've got opportunities to see what other tips and tricks we can give you and if you are struggling don't forget to reach out to us at boffix where we can do things like even just an mot on your tax return before you press submit just to make sure you've got everything included as you need to my name has been on patrick this video has been an absolute pleasure to do for you and i'm sure i'll see you in the next video bye for now [Music] [Music] [Music] [Music] you