As a business you are required to declare all the income you have received in your end of year accounts. This is used to calculate how much tax you need to pay. This page explains the importance of accurately recording income and the ways in which it can be done.
Why should I record my income?
By recording income daily, or weekly for smaller businesses, your record keeping will be more accurate than if you were to try and calculate a year’s worth of income in one go.
If your business is registered for VAT you will also need the income records to be able to complete your VAT return each quarter.
You are also required by HM Revenue & Customs (HMRC) to keep good records of income you have received. HMRC are entitled to check your record keeping at any time and can issue fines if they feel that the system you have in place is not suitable.
It is important to remember that the income you record is the money you have received, not the money you are left with at the close of the day’s business.
For example, a hairdresser takes £200 in cash sales during a day. She pays her assistant £50 for her day’s work from that cash.
The hairdresser should record her income as £200, and not the £150 she has in her hand after paying the wages. Any expenses incurred should be recorded separately.
I receive a large number of cash and card receipts each day
…do I need to make a note of every transaction?
No, but you will need to record the total daily income you have received. It is not practical to record each transaction for a business which has a high number of small sales, for example a pub.
You will also need to split the daily takings between cash receipts and card receipts if you accept card payments.
Your accountant will need this as they will need to reconcile the amount of cash held at the end of the year.
What is the best way of recording the takings?
You need to use a system which both you and your accountant can easily understand. The simpler the better – a handwritten cash book showing the date, cash takings and card takings will suffice. Or you could record the information on a spreadsheet. The spreadshet will be able to total each week, month or year for you and save you time.
Whatever method you choose to use, if you are VAT registered you will also need to split out the VAT. Your accountant will be able to help you with this.
It is important to start recording income from the first day of trading. The longer you leave it before you start the harder it is to catch up and get it accurate. So, start recording your income on day one no matter how small your business is.
I am a builder and I carry out a handful of large jobs each year.
I send invoices to my customers but they do not always pay straight away. How do I record this?
The invoices you raise are an adequate record of your income. Your income for a year is based on the amount you invoice, regardless of whether your customers pay that year or the next.
However, you do need to keep a record of when the invoice is paid and how – for example cash, cheque or bank transfer. This could be as simple as writing these details on your copy of the invoice. Your accountant will need this information to be able to reconcile your bank and cash accounts.
You must keep a copy of all the invoices you issue in date order and give these to your accountant either at the end of the year, or each quarter if you are VAT registered.
Do I need to keep any other documents when recording income?
As well as the system you use to record your income, you will also need to keep bank statements and till rolls if applicable. Your accountant will need these to be able to prepare your accounts in case they need to cross reference the figures.
Download a sample income record.
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