Well, I totally expected to come home to a mountain of post after my fantastic holiday in Portugal – but I wasn’t quite prepared for the contents of that huge mountain!
Why it’s vitally important to keep your accounts up to date…
Yes, I was welcomed home by a letter from my accountant detailing the fact that I should now pay my not so insignificant tax bill. Oh, I really could have wept when I saw the figure – and after I had picked myself up off the floor!
But then in a moment of clarity I thought – hang-on a minute, let’s look at this in a positive light. If I wasn’t making money then I wouldn’t have a tax bill, therefore it’s actually a good thing! And that made things a whole lot better after my cruel bump back down to planet earth.
Seriously though, looking after the finances of your online business might not be the most thrilling part of your job or the part that you want to deal with, but it is one that is absolutely essential for either yourself or an accountant.
It doesn’t matter if you sell a few bits and pieces on eBay alongside your day job or if buying and selling online is all you do, the profit that you make online is still income and must be declared to the government at the end of the tax year. At that time, just like I have to right now, you will also need to make a payment for the amount of tax calculated based on how much money you have made.
Now, before you go getting any ideas – not that I think you would – ignoring the fact that you need to declare how much you make to HM Revenue and Customs is not an option!
You might go undiscovered for a little while, but if the government catch up with you then you could face prosecution for tax evasion with the prospect of a hefty fine or even a jail term depending on the severity of the situation.
Honestly, I am really not trying to scare you or put you off selling online – it’s just that you do need to know the facts and it’s important that you start as you mean to go on.
Keeping track of how much money is coming in and going out needn’t be a difficult or even an overly time consuming process; you just need to get organised that’s all.
eBay’s own reporting tools can help you out here, letting you know how much money you have made in any given month and how much you have paid in insertion fees. Because, by keeping track of how much you have made and how much you have spent you’ll never be taken by surprise with a bill for your tax owed at the end of the year.
So, with this in mind, these following three tips will help you to keep your accounts in order as they have helped me:
Tip 1 – Create a simple spreadsheet
It doesn’t matter if you don’t have Microsoft Excel installed on your computer; there are other free spreadsheet software programs available on the market today (just do a quick Google search) that you can use in order to stay on top of what’s coming in and what’s going out. You only need a few columns in order to stay on top of your earnings from your online business:
- Expenses and Income. These should be text fields that allow you to enter what you spent money on or made money with, for example eBay fees, stock, and successful auctions.
- Date. It’s really important to keep track of the date on which you spent money or made it, as this will keep your spreadsheet in line with your printed receipts (which you should also be keeping) and will help you to know which activity falls within which tax year.
- Income Amount. Add a figure into this column each time you earn some money. At the bottom of the column you may wish to use a formula within the spreadsheet to show your running total for the month.
- Expense Amount. As with the income amount column, add in the amount of money that you have spent here and allow the spreadsheet to calculate the total for you.
And that’s it! At the end of each month you can simply subtract the total of your expense amount column from your income amount column to see how much profit you have made. Based on your own tax bracket, you should then be able to tell immediately how much tax you will need to pay for the profit of that particular month.
It’s good practice to keep adding figures to your spreadsheet as you go, however I always recommend spending a bit of extra time at the end of each month to run through your income and outgoings to see if it lines up with eBay’s reports and invoices for your stock.
Tip 2 – Don’t leave it until the last minute
The folk at HMRC do provide you with a bit of time to complete your tax returns at the end of the year but try not to leave it until the deadline.
In the UK the financial year runs from the 6th of April in one year, until the 5th of April in the year after, so you will have the freedom to submit your tax return any time after that date, and up until either October that year or January the following year depending on the complexity of your business.
With all those months to get organised it can be tempting to conveniently forget about your accounts until the time when you need to submit your report, but trust me, that’s not something that you want to do.
Keeping on top of things throughout the year with a simple spreadsheet will save you an incredible amount of hassle when it gets to the end of the year.
Imagine trying to dig out every receipt and find every statement to show how much money you made without any records at all. It would be chaotic and would take far more time than simply entering some figures each time you make a sale or at the end of a business week. Keep things up to date as you go and it is so much easier!
Tip 3 – Ask for help if you need it
Unfortunately no matter how simple your own spreadsheets and how well you stay on top of things, there will be other questions you will probably have about the keeping of the accounts for your business.
From deciding whether to declare yourself as a Sole Trader or a Limited Company to knowing how much money to put away each month to pay the tax bill at the end of the year; it can be a bit of a minefield out there, particularly if you are used to paid employment where your tax is automatically deducted from your salary.
The good news though is that help is always at hand! There are numerous services that can help you out by providing assistance with tax returns, bookkeeping, general accounting and more. If you aren’t sure where to start when it comes to keeping your accounts in order I’d recommend taking a look at the TaxAssist Accountants website.
With offices all around the UK, these small business specialists have an incredible amount of useful information to get you going, or to help as your online business grows so they are definitely worth checking out.
Alternatively, if you want to do things yourself, this is an easy to use website to keep your accounts records up to date. Outright is a US site but can be used in the UK. You can find it here.
The beauty of Outright is that it is eBay, Amazon and PayPal compatible and once set up, will automatically import all your figures from those three sites. You can also enter extra expenses and incomings manually. It’s totally free and so definitely worth a look at if your business is small and growing.
I used Outright initially until I got myself an accountant when my business grew larger than I could handle myself, so it does come recommended!