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May 31. 2018

Evidence is Key

Record keeping is vitally important and been prepared with your records is a good habit to get into. You will thank yourself in the future if you receive a letter from HMRC advising they are going to conduct a business record check. To make sure you are on the right track with your records think about how you record your work and your cashflow. By ensuring you think about these two factors you will be able to give the vital supporting evidence that will be required should an investigation take place. It could be two, three or four years before you have to check your records in such a situation. Clear information will be informative, and you will not need to try to remember what that transaction was, here is an example: 

You book a holiday for you and some friends and pay the deposit yourself. Your friends pay you their £200 share by bank transfer a few days later and you pay it into your personal bank account. This is an entirely non-taxable transaction. However, two years later when the Revenue are looking into your affairs if you can’t recall and or evidence what that £200 was, the Revenue are quite likely to assume that it relates to a block booking of driving lessons which has not been declared in the tax return and so tax you on it – and don’t forget there could be penalties and interest to add to the basic tax due

FBTC's advice is to think about your;

Diary - Keep detailed records of the lessons you undertake in a daily diary. Mark all bookings taken and just as importantly mark any that do not turn up or cancel.  At the end of the day or week total the cash received in the diary and bank that sum.  This will give a clear trail of your business activity. The FBTC online cashbook provides you with an ongoing report which is useful for viewing your current net profit. 

Bank accounts - Keep your personal and business cash flows separate by using a separate bank account for the business.  Use it religiously.  Don’t be tempted to use any of your cash earnings to buy petrol, lunch or anything else you might need during the day, this prevents the possibility of “forgetting” to record the cash income.  Pay for business costs with a bank card and keep the receipt.  Again, this will give a clear audit trail of your business expenses.  For your personal drawings make regular weekly withdrawals or transfers to your personal account and record them as such and use this cash and only this cash for your non-business expenditure.  Finally, it is best to include references on your bank transfers for your own personal bank transactions, particularly in relation to one-off deposits and expenses because you’ll not remember everything two years down the road!

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