Written by James Trowell, Accounting Lead at Coconut (Coconut is a current account platform for self-employed people that makes it easy to do your accounting and tax).
Ever struggled to sort through your bank statement with its lengthy list of transactions?
70% of all independent contractors still use their personal account for both business and personal expenses. This might feel like it keeps things easy, but it doesn’t serve you and your business well in the long run. The good news? It’s a very simple problem to fix.
Here are three reasons why separating your self-employed expenses from your personal expenses is a good idea:
1. Save Time on Your Tax Return
Picture this: it’s January, the month of the tax return. Spreadsheet open, floor covered in bank statements and receipts. If you relate to this common tale of tax season, then we have some good news. It can be avoided with the simple act of separating your business expenses from your personal expenses. Just consider the hours you might save if you could download business-only expenses at the click of a button.
2. Improve Cash Flow
Behold. The magnificent money mirage.
Your business has just been paid and thoughts quickly turn to that well earned holiday you’ve been dreaming of. After half an hour of searching online, you’re off to the beach. Perfect. Well… not really. The rent on your flat comes out of your account tomorrow, along with your other monthly bills.
The fact is, it’s difficult to keep track of your money when you’re using the same account for both business and personal use. Instead, keep your personal money separate from your business money and you’ll always know how much you have, making it easy to stay on top of your finances.
3. Keep HMRC Happy
It’s been a good year. You’ve got back-to-back tasks booked in, invoices are flying out the door, money is coming in, and your business is in full swing. There’s no time for any of that tax business, none of that paperwork. It can wait. And does it really matter if you forget the odd receipt and don’t capture that small job you did on the side?
The answer is yes.
HMRC can audit you at any time and the more mistakes you make, the more likely it is to happen. By implementing a system that clearly outlines your business income and expenses, you’ll save yourself lots of grief if you’re asked to provide paperwork and proof of earnings.
Open a separate business account with a separate debit card and use that to pay for all of your business expenses. With services like Coconut you can get up and running with a business current account in minutes. Through one simple app you get access to all the bookkeeping tools you need; invoicing, expenses tracker, receipt capture, tax estimations, and you can even record VAT rates if you’re VAT-registered.
Thanks to our partnership with Coconut, you’re able to get 6 months of their premium Grow tier for free.