Business receipts have a complicated place in the hearts of most people new to self-employment. That moment when you first register your company, head into a shop and put something ‘through the business’ – it’s an exciting time for everyone.
It makes you feel proud of yourself, not to mention a little as though you’re getting something for free (you’re not – sorry!) All of that subsides rather quickly, however, and business receipts – and what to do with them – have a tendency to become quite a chore over time.
What freelancers should do with business receipts
As with many things in the accounting world, it probably won’t come as too much of a surprise to find that many newbie freelancers aren’t sure what to do with their business receipts. Therefore, we thought we’d put together this handy little guide based on questions we’re commonly asked.
Why do we need to keep business receipts?
If you’re a registered business and you’re planning to put a variety of expenses through your company, then HMRC requires that you keep your business receipts for seven years. At any time you could be subject to an HMRC investigation (not that you’ve necessarily done anything wrong – they just like to keep you on your toes), so you need to be able to account for all of those transactions, no matter how small.
Is it enough to keep your business receipts stuffed in your wallet?
Let’s be realistic here: over seven years, most of your receipts are likely to fade, and if they’re stuffed in the back of your wallet – no matter how neat and tidy you are – the chances of survival are slim, at best.
At My Accountant Friend, if you’re choosing not to use our app for business receipts (more on which later), then we recommend you create a folder for each year with 12 dividers separating each month. You can then split them out, and that’ll make it easier to find one if required for an investigation.
If you use a business receipts app, like the one My Accountant Friend clients are given, can you throw away all the paper?
Yes, HMRC is all about Making Tax Digital these days, so they’re fine with digital copies of business receipts. That said – and we can’t stress this enough – you should make sure you regularly back up your files. “My phone didn’t save my receipts” is no better an excuse than “my dog ate them”. You have been warned!
How does the business receipts app interface with MAF’s software?
It’s very easy for our clients to use, but not terribly easy to explain. That’s why we made this video…
How does using the MAF app help your accountant?
It means that you, as a client, can allocate payments from your bank and add expenses on the go. This ensures that your accounting dashboard and portal is always as up to date as possible. We do love an up-to-date portal, us accountants.
Presumably, if you are randomly investigated by HMRC, they’ll want to see your business receipts.
What do HMRC expect to see if investigated and how you can prepare in advance?
The answer to this question depends entirely on the investigation that they choose to carry out, but they will advise on what they want to see beforehand. For example, a VAT investigation may only ask for receipts in which VAT has been claimed, whereas a corporation tax investigation may want to see all receipts.
It’s best just to make sure you keep as up-to-date as possible and know where your business receipts are at any given time.
What’s the difference between VAT receipts and standard business receipts?
If you’re on the standard VAT scheme then you’ll need to show a VAT receipt for every purchase on which you hope to claim back VAT. The difference between VAT receipts and standard business receipts is simply that one splits out the VAT (in an itemised way) and the other doesn’t.
It’s a bit of a faff, but sometimes places like petrol stations don’t automatically do this for you so you need to go in and specifically request a VAT receipt. Once you have one, though, a business receipts app like the one we offer at My Accountant Friend will split everything out for you.
What happens if you can’t show every single receipt? Are HMRC ever lenient?
As we mentioned earlier, sometimes receipts will fade over time and on some occasions you may not be able to get a receipt. If the lost receipt was for a small value and you can prove payment by another means, then this should be sufficient.
For any large amounts, receipts or invoices will be required if a tax saving is being claimed – there are no two ways about it.
If you’re concerned about how to keep your business receipts sorted, or you’re concerned about an impending HMRC investigation, drop us a line at My Accountant Friend. We help people in these situations all the time, and we’re always happy to chat through your situation before you make any commitments.