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A simple Profit and Loss statement

10 June 2009 One Comment

The Self Employed

We are often asked about the sorts of things that self employed businesses can claim for, in order to reduce their tax bills. Unhelpfully, UK law says that “you can claim for expenses incurred in the course of running your business” and there is no further explanation! The reality is that a working practice has evolved and both the tax office, and accountants as a whole, have a feel for what is right.

When you start in business, the best approach is to record everything. The example profit and loss account detailed below shows typical expense categories. The average number of categories used by small business is sixteen. Your business may deserve more or fewer, and may need one or two new specialist categories. The example can be adjusted to suit your needs.

By following this example and you won’t go far wrong.

As well as the day to day expenses shown in that PDF file, you should also keep track of the major items of expenditure for things that last for a few years. That’s stuff like cars, furniture and computers. Keep a list of these things separately, noting the date of purchase and the cost, and the date of disposal and the proceeds.

At the same time as tracking your expenses, please also keep track of your income! And put aside a proportion of your income as a tax reserve! As a rule of thumb, small businesses that put aside 25% of their sales ought to have enough to cover their income tax and national insurance bills!

Once per year, or once per quarter, these are the sorts of records that your accountant is going to ask for.

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Posted on 10 Jun 2009

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