The HMRC requires that you document your business income and expenses in a professional uniform way. They say you can’t run a business without keeping records and many times will disallow deductions you try to take if you don’t have the proper documentation.
Here are the most important systems you need to have in place in order to keep all of your business deductions:
You must set up a separate bank account for your business. The HMRC will definately disallow all of your business tax deductions if you are co-mingling funds, operating your business out of your personal bank account. If you co-mingle funds, the HMRC will assume all of your expenses are personal and removed from your tax return. This will leave all of your income on the return for you to pay taxes on.
Please save all receipts for your business purchases. The best method is to make a copy of them or scan them into your computer and save them on your hard drive, a flash drive and on a disc. If you don’t reproduce the receipts, you will find that after the three years, the HMRC normally waits to audit you, all your information has faded off the page.
DO NOT PAY CASH:
Since cash does not leave a paper trail, paying for business expenses with it leaves your fate up to the HMRC. If you do not have proof of payment, the HMRC will use it’s discretion in deciding whether or not to accept the deduction. Most likely, they will not allow it.
KEEP ALL CREDIT CARD AND BANK STATEMENTS:
In order to have a complete record of your fiscal year, you should save all of your bank and credit card statements. These statements should be scanned and stored on your hard drive, flash drive and disc.
KEEP A MILEAGE LOG:
If you intend to take a deduction for driving your car, it is necessary that you keep a log of all the mileage you drive. Information contained in your log should be the date, destination, roundtrip mileage, business destination, who you met with (if anyone).
USE A BOOKKEEPING SYSTEM:
You are required by the HMRC to have a bookkeeping system that summarizes the business’ financial transactions for the year that are reported on your tax return. The absolute best solution to this problem is to hire a professional accountant to keep track of this information. An accountant will provide you with accurate reports and graphs that help you make better informed decisions about your business.