Accounting Basics: Sales & Purchases
To run a successful business, you need to get the basics of accounting right. Quite often the more simple aspects of running your own business are overlooked, namely the correct ways to perform and record sales, which purchase invoices to include and what type of accountancy records you should keep? HMRC may require sight of sales and purchase records so they can verify your tax calculations and failure to present them is likely to incur a penalty fine.
Recording sales for your accounts
Accountants commonly find three types of sale; goods, time or skill, or quite often a combination of the three. If you are selling goods then you are either retailing, wholesaling or operating an e-commerce business.
Retailing or wholesaling quite often doesn’t involve the production of a traditional sales invoice; more often than not it will involve the use of a till. If you have a till then HMRC will insist that you keep any till rolls or reports it produces. These are not just important as a record of your sales, they also allow you to make sure the physical cash ties up to the sales being made, providing a good way to highlight potential mistakes or theft.
If you are selling through an e-commerce site often your sales will be recorded digitally. It is important to have a physical report that can be regularly printed as a record of your sales.
If you’re selling your time or skill then normally you would produce an invoice with basic details of the sale. This can be done in a simple Excel spreadsheet or Word document or you can pay a printer to produce an invoice. Your invoice must contain the following:
- Name and address
- Contact details
- Invoice number
- Unique Taxpayer Reference (UTR) – (if Sole Trader)
- Company number (if Limited)
- VAT number (if registered)
What can I claim tax relief on
If you’re selling goods then your main cost will be the items you buy to resell, together with your overheads which include telephone, rent, motoring, insurance, postage etc. It is important to keep all receipts together and give them to your accountant. With receipts and invoices you cannot claim tax relief.
In most cases you can claim tax relief on the full amount of an invoice, however, there are some expenses where allowances should be made for personal use. HMRC will not accept that you never use your mobile phone for personal calls, or that you never use your vehicle privately – therefore you can only claim relief on an agreed percentage of the cost.
There are some expenses that you do not get an official invoice for such as bank charges or monthly insurance payments. These are picked up from your bank statement when preparing your accounts.
Self-employment tax advice
If you are considering becoming self-employed Taxaccolega, a low fixed fee accountant, can offer professional advice about your tax liabilities and exemptions. There are ways of saving money on tax if you know the rules. We can also give you advice with regards a business model that is proven to bring success so call us today on 08000 235 234 or email email@example.com.