Kashflow help

[SLEE]

I have recently started using Kashflow and so far im happy enough with but i have one thing that i would like to do and i can't figure out the best way to do it.

Background: i work freelance and have only recently sorted out my business bank account i now have clients paying into the business account and then i transfer the money to my personal account so i can my bills etc i guess in a way this is my salary.

I have entered all my invoices, purchases etc and everything is now in but the bank part of it says i am massively in credit because it does not have the records to show the money that i have moved to my personal account. ideally i would like to have the business account set to the correct money i have in it at the moment so it will be easier to see what is going on as i use it more.

i thought if i added a transaction under the bank tab and set a transaction type of exclude that would allow me to set the transaction where i've moved the money to my personal account but that effected the profit and loss reports.

i emailed the support and they have suggested i set up a new bank account and then set it so the money has moved to there but surely that will effect things as well?

does anyone have an idea on how is best to set this up so i can have the correct amount on the business account?

[Matt]

I have the same problem, I set up myself as a business I buy stuff off, and just do a reciept for any money the business pays to me.

[SLEE]

won't that also effect the profit and loss though?

[Matt]

won't that also effect the profit and loss though?

But isnt it classed as an expense anyway? So it should be there?

I

[SLEE]

i dont think it is classed as an expense else if you have had 10,000 and you have moved all the 10,000 to your personal account then you have not made a profit but you have it is just that you are moving the money.

i followed what the suport said and have set up a new bank account then set up a transaction to move the money from one account to the other now the business account is set to the correct amount and it has not effected the reports

[Mr Anderson]

won't that also effect the profit and loss though?

But isnt it classed as an expense anyway? So it should be there?

Not really. There's little point setting yourself up as a second business to be a supplier as it will just mean that you have to balance two sets of accounts to get to the same end point. You still have to pay the same income tax on what you take either way, and as Lee says by counting yourself as a supplier you are effectively saying that your proper business is less profitable than it really is. Remember, you're a sole trader not a limited company so anything that your business makes is yours anyway you don't have to shuffle it about to account for what you take from it. You just pay income tax on all the profits at the end of the year.

does anyone have an idea on how is best to set this up so i can have the correct amount on the business account?

I believe that Sarah already mentioned how to do this?

Create a transaction type for your bank account, call it wages. Then whenever you take out wages go to the bank tab add the transaction and give it the type 'wages'. Then under the profit & loss report click on the edit classifications link, and at the very bottom set the wages transaction type to be on the balance sheet. Then the profit & loss will show as it should.

[sarahA]

Lee you're almost there. The transaction type you set to give your wages just needs to be excluded from the profit and loss report.

Remember, Kashflow is just set up by default how they feel it should be set up. My personal Kashflow account is completely changed to suit my way of working/thinking, so edit the classifications in the P&L report and make sure everything is where you think it should be, and anything that shouldn't be on there, stick it on the balance sheet.

That way your P&L report will be correct and your bank account should still match what your real bank account holds.

Think of the system as

Sales - holds all your invoices, whenever you invoice someone there should be something here to show that.
Purchases - whenever you have a receipt or invoice from someone it should be in here.
Bank - this is where any extra income that isn't invoiced for eg. Google AdSense, Text Link Ads etc. goes, and outgoings on the bank account such as your wages. You shouldn't really have any other outgoings on the bank account besides anything that goes to you, as everything else should be accounted for under purchases, plus it'll make it easier to read in the future.

Matt - I would take 10 minutes when you can and convert your wages from a purchase receipt to a bank transaction to save you hassle in the long run. If, for example, the tax man wanted to come and check your accounts and you print off the purchases with payments to you written down they would start to wonder what's going on. Plus it'll give you clearer understanding of your accounts and what you've made, what you've spent etc.

[Matt]

I onyl do it for when paying billls ie I combine the amounts and make it that the business has paid me x amount for the heating and gas bills etc etc.

I dont enter wages into it, as you say Kashflow tells me how much I have made, and then I base my tax amount on that and keep that safe

[sarahA]

Right, for your percentage against rent, gas, electricity and water, I would recommend to keep a spreadsheet for each month and then just add in one total amount at the end of the year for each one, and separate them. Just put it down as a Rent purchase, water, electricity and gas. Otherwise it will still look odd if you've paid yourself, regardless of what it is for. If you can, put down who the rent goes to, water, electricity and gas eg. A purchase from e.On for your electricity, a purchase from British Gas for your gas etc.

[Matt]

Right, for your percentage against rent, gas, electricity and water, I would recommend to keep a spreadsheet for each month and then just add in one total amount at the end of the year for each one, and separate them. Just put it down as a Rent purchase, water, electricity and gas. Otherwise it will still look odd if you've paid yourself, regardless of what it is for. If you can, put down who the rent goes to, water, electricity and gas eg. A purchase from e.On for your electricity, a purchase from British Gas for your gas etc.

Ah okay, I used to do it like this, but my dad told me to do it like Im doing now.

WHislt your here with your business head on - am I entitled to claim for rent and anything on my car loan/insurance etc?

[sarahA]

You can claim a percentage of your rent as you do with your electricity, gas and water. I was told to take the number of liveable rooms in the house (ie. all rooms excluding kitchen and bathroom) and then divide that into 1, the 1 being the 1 room you work from. That gives you a fraction which is the amount you can claim for.

eg. Your rent is £500 a month. You have 2 bedrooms, a room you work from (eg. a third bedroom) and a lounge. That would give you 4 rooms so you can claim 1/4 of your rent/electricity/gas/water ie. £125 a month of your rent can go down as an expense.

However, as your circumstances are different (living with Jade and James) then you may be better off calling HMRC and asking someone there what fraction you would use.

In regards to car loan and insurance, you need to do mileage if you want to do it correctly. Whenever you use the car for business use make a note of the mileage. Also make a note if you have a passenger in the car for business use. You can claim 40p per mile for yourself and then 5p per passenger. I would then create a supplier called Car Mileage, and at the end of each month add up your miles and put them down at 40p per mile (plus the extra for passengers if relevant).

That 40p/mile is designed to cover petrol, car insurance, road tax and depreciation. The car loan is yours at the end of the day. Unless the business is buying the car then it's a personal loan and is of no interest to the tax man. The 40p/mile covers depreciation which goes towards the use of the car.

[Matt]

You can claim a percentage of your rent as you do with your electricity, gas and water. I was told to take the number of liveable rooms in the house (ie. all rooms excluding kitchen and bathroom) and then divide that into 1, the 1 being the 1 room you work from. That gives you a fraction which is the amount you can claim for.

eg. Your rent is £500 a month. You have 2 bedrooms, a room you work from (eg. a third bedroom) and a lounge. That would give you 4 rooms so you can claim 1/4 of your rent/electricity/gas/water ie. £125 a month of your rent can go down as an expense.

However, as your circumstances are different (living with Jade and James) then you may be better off calling HMRC and asking someone there what fraction you would use.

In regards to car loan and insurance, you need to do mileage if you want to do it correctly. Whenever you use the car for business use make a note of the mileage. Also make a note if you have a passenger in the car for business use. You can claim 40p per mile for yourself and then 5p per passenger. I would then create a supplier called Car Mileage, and at the end of each month add up your miles and put them down at 40p per mile (plus the extra for passengers if relevant).

That 40p/mile is designed to cover petrol, car insurance, road tax and depreciation. The car loan is yours at the end of the day. Unless the business is buying the car then it's a personal loan and is of no interest to the tax man. The 40p/mile covers depreciation which goes towards the use of the car.

Thats brilliant, thanks. I keep a record of the Postcode of all jobs Ive done, so Ill sit there one day and work it all out soon per mile and do a single payment for April to now as you suggest, then try to keep on top of it all and do it monthly.

I already do the rooms divided by 6 (Front room, back room, 2 bedrooms and atic room which is my sole office, and kitchin so 6 rooms) so does that mean do the £500/6 to get me a figure for the rent?

How would Jade/James affect this, surely its the same case for nearly everyone who works from home, that their family will use the house too?

[sarahA]

Don't include the kitchen. Kitchen and bathrooms are not liveable so they're not included. Should be front and backroom, 2 bedrooms and attic room, so 5 rooms.

I don't know if living with Jade and James would affect it at all. It could decrease the number of rooms available to you if one is taken up with James, meaning you could claim more. It could also potentially mean you could claim less.

In theory, if you're only claiming against your share of the bills ie. 50% of the total rent you both pay (if you pay 50% of the rent), then dividing this figure by 5 should be correct, however as I say, I can't be sure and you would be best off checking, especially if there's a possibility you could possibly claim more against tax.

[Matt]

Don't include the kitchen. Kitchen and bathrooms are not liveable so they're not included. Should be front and backroom, 2 bedrooms and attic room, so 5 rooms.

I don't know if living with Jade and James would affect it at all. It could decrease the number of rooms available to you if one is taken up with James, meaning you could claim more. It could also potentially mean you could claim less.

In theory, if you're only claiming against your share of the bills ie. 50% of the total rent you both pay (if you pay 50% of the rent), then dividing this figure by 5 should be correct, however as I say, I can't be sure and you would be best off checking, especially if there's a possibility you could possibly claim more against tax.

Thanks Sarah, Ill check

This leads me on to another question - I pay all the bills (100% of the rent and council tax), apart from the gas and electric, but it is in my name. How does this work?

Also, Im claiming for 100% of my broadband and house phone costs. and £25 out of £35 for my mobile phone. I need broadband for my work, and wouldnt have a house phone without it. I also have my calls directed to my mobile and my landline so require them. I dont go over my bundled minutes/texts so cant really bill each item?

Lastly, I made a loss in the first year, I understand thats expected as my business brought my PC off of me. But next year, what happens if I dont make enough to cover these costs, do I still make a loss? Will anyone give a damn?!

Sorry for asking so many questions, but its useful to ask people who have been through it before.

[Matt]

Okay, so for 2008/2009 Ive done the following:


Ive then created a reciept for each of those different companies, and just put the description as (eg gas) '4 months (Decemeber - March) @£40/5'

Would that be the kind of thing needed?

[sarahA]

Forget council tax, you can't claim that.

With the gas, electric and water, last year these bills were in Dave's name. We just split them 50/50 and then claimed the percentage on our half of the cost. If you pay all the rent and can prove it (ie. prove you get nothing from Jade for paying it) then keep that at 100%, however this is really the point at which I would recommend to check with HMRC just to be 100% certain.

Your other costs sound fine. In theory with broadband and your mobile you should determine how much of it is used for business and put that down as a claim, but as I'm sure it jumps up and down then just a fixed proportion should be fine.

When you make a loss you should still complete a self assessment for this. As you are working too then this loss would go down against what you paid out for tax and NI in your wages and HMRC should rectify it to balance it out. At present my own self employment is making a loss as I had invoices come to me personally after April, and as I'm now employed by the company I don't have much coming in. However I made profit last year and these expenses are really against that so if I don't make any profit by April I should get some money back.

So basically just complete the self assessment as you should. The loss you make as self employed should be balanced out with your wages and you should receive a rebate on the tax you've already paid.

However, I've never been in the loss making situation so I'm only going by what I assume.

Have you done your self assessment for 08-09 yet? If you have then you should have already seen this balance out and if it didn't then I would consider speaking to the HMRC about it. If you haven't then wait until you do and see what it comes up with.

[sarahA]

Ive then created a reciept for each of those different companies, and just put the description as (eg gas) '4 months (Decemeber - March) @£40/5'

Would that be the kind of thing needed?

Yes that's fine. Just keep a spreadsheet (as above) for each tax year, so that if you had to provide proof you could include that in. I used to add each individual month in for each service, but then realised there's so much to add in, that a spreadsheet just to show the yearly spend for each service is fine.

Plus if you do ever want to go Limited then you'll be better off in the long run keeping complete accounts now. Gives you a chance to understand what's going on and how the system works.

[Matt]

Thats brilliant Sarah, thanks for clearing that up Ill give the HMRC a call, I havent done my tax return yet as Im still trying to make sure everything is correct.

So in effect, because the business is costing me money (Im making a loss) they dont charge me as much tax on my employed income?

[Matt]

Last question ...

Whats the best report in KashFlow to show me the profit my buisness made, and that I would therefore be taxed on? (or not as in my case for the last year)

[sarahA]

I would imagine that they should give you a tax rebate. Just ask them to be certain, and let us know  They may say to carry the loss over to this current tax year and then ideally your profit from this year would be reduced. I'm not sure. Somewhere along the line that loss needs to give you a tax credit somewhere.

[sarahA]

Last question ...

Whats the best report in KashFlow to show me the profit my buisness made, and that I would therefore be taxed on? (or not as in my case for the last year)

Use the Profit and Loss report. Make sure you edit the classifications to ensure that the right figures are under turnover, cost of sale and expenditure. Turnover should be bad debts (as it should reduce turnover because you never received it), any income via invoices or just bank payments, discounts given to customers if you include those on invoices etc.

Cost of sale is anything you've bought to sell on ie. you wouldn't have bought it otherwise. Includes such things as domains for clients (not your own), software, computer parts etc.

Expenditure is other expenses that don't fall into the cost of sale so anything bought for your business. Domains, computer parts, admin expenses, service costs etc.

Then when you view your profit and loss you'll see The Turnover at the top, the gross profit is your turnover less cost of sales. Finally net profit is of course turnover less cost of sales and expenses. This is the profit that is taxable.

Of course then tax and NI is easy to work out now. As your wages will have your free pay, then your profit is all taxable at 20%. If your profit is over the low earnings threshold for NI class 4s then you'd also pay 8% however if you're making a loss then that certainly isn't an issue. You need to earn over £4k before you get hit for NI class 4s.

Also, if you're not hitting over £4k profit then I assume you've taking out a low earnings exemption from paying class 2s as well?

[Matt]

I did get a cerificate yes.

Thanks for that. I've been using the materials purchased to clasify things I've brought to sell on so that pretty easy tp put as a sales cost

[sarahA]

Here's some reading for you on Losses - http://www.hmrc.gov.uk/helpsheets/hs227.pdf

By the looks of things the loss will have to be carried forward and reduce your profit for the current tax year. ie. the tax you've paid on your wages has no relevance.

If I make a loss this year I can balance it against last year's profit. In other words the profit and loss stays within the same trade/business.

[Matt]

Thanks for that Sarah.

Just spoken to HMRC, and they confirmed that it doesnt matter that Jade or James live there - its the bills divided by the number of rooms.

She did say that I can claim council tax though - so maybe thats something you can claim as well?

[sarahA]

We don't claim anything for a number of reasons, however I don't think the claim about council tax is right. In the literature that comes with your self assessment form (you can read the PDF online - http://www.hmrc.gov.uk/worksheets/sa103f-notes.pdf) it mentions rent, electricity, water, rates, insurance even (house insurance possibly, although I would imagine it means business insurance possibly), but it doesn't mention council tax. If you start claiming on council tax you could draw attention to the fact you're working from home, even though it's perfectly legit. If you're deemed to have one room that you operate a business from ie. that room is not a liveable room, then you could be liable to pay business rates on that room instead of domestic council tax.

I know, in the past, you can call the HMRC and get a number of different answers off different people for the same question. I know rent, water, electricity and gas are safe to claim on. It's up to you if you add council tax into that. I know I was told back in 2004 that I couldn't, but of course things change and that was 5 years ago

Possibly someone else may know who works from home.

[Mantis]

Sorry to be sort of off topic but I can gather that this software comes highly recommended??

I have just become self employed So I now do my own consultancy as well as researching the other business I am looking to develop.

I have not looked in to accountancy software and was just going to opt for Sage accounts, it does seem quite pricey.

[Mr Anderson]

Sorry to be sort of off topic but I can gather that this software comes highly recommended??

I have just become self employed So I now do my own consultancy as well as researching the other business I am looking to develop.

I have not looked in to accountancy software and was just going to opt for Sage accounts, it does seem quite pricey.

It is very good, we use it and it's very comprehensive but simple to use. You can sign up for a 60 day trial (IIRC), and if you go through an affiliate link it reduces your monthly subscription by £1 a month (http://kashflow.aislinks.com is Sarah's Aff link).

[sarahA]

Very highly recommended. Makes doing your own accounts easy, and even if you do have an accountant, you can keep their costs down by at least inputting the data, then they can just log in and view it all. Our accountant logs in and checks it over before we run our VAT return, and if we've every got a question they can log in and see what's going on. Plus as my Mum does all our accounts and invoicing it means she can access it direct and we can still log in and see what's going on and/or issue invoices ourselves. Plus with repeat billing and reminder emails it has saved a great deal of time. Well worth the small monthly fee.

And Mr A is correct, 60 day trial, no need to even enter your card details, and if you do choose to subscribe you still get the 60 days for free.

[Mantis]

I will look through their website tomorrow.

Thank you for that

[Matt]

Highly recommended - I use it and my partner does all the paperwork through it