One of the most valuable pieces of financial advice I could give to contractors is also one of the simplest. It is based on the famous old maxim, ‘If you fail to prepare, then you prepare to fail’ and can save you money as well as hours of pain and paperwork.
Keep business in the business and your personal life to itself…
The advice is simply this. Do not put any of your business expenses through your personal accounts with the aim of claiming it back or sorting it out later. There are no tax benefits in doing this and you will only ever cause yourself complications, guesswork and possibly even fines and penalties in the long run. Seriously, it just is not worth the trouble.
What takes a few moments thought at the time of purchase (ie. is this something I can legitimately put through the business?) can save five, ten, fifteen minutes at a later date. Instead of hunting around for receipts, and bank statements, filling in forms, trying to remember and fudging the edges, you can be doing far more profitable things with your time. And, as we all know, those minutes sat in front of a pile of paperwork can seriously add up.
It is not illegal to pay personally and then recharge the invoice to the business. It is just illogical, and in terms of your company’s health, ill-advised.
A stitch in time saves nine…
This age-old proverb basically means that if you put in a little effort now you will save many more times the effort later on. In this case, it is not even effort in the first instance, but just a moment’s thought. Think of it in the same way that you would, making sure you had all the ingredients ready before baking a cake, rather than having to make a trip to the shops halfway through the process. Or checking that you have got passports, tickets and sun cream before heading to the airport, instead of simply hoping that they are packed and waiting until you get to security.
Many of us are, by nature, very good at what we do but not always as good at planning to do it in the most efficient way possible. Life experience, however, should tell you that a little thought or forward-planning is always a massive advantage when you arrive at the destination. Whether that is a holiday, a bake-off challenge or your tax return.
A few other ways to think ahead.
My standard advice for contractors is to keep motor vehicles and private health insurance out of the company. The National Insurance liability will always be larger than the Corporation Tax savings in these cases. Remember HMRC’s checks will pick up on too many inter-account transactions between personal and business. This is only ever likely to raise their suspicions. Keeping everything clean and tidy is better for your pocket, your overall time and effort, and keeping the taxman happy.
So if you want to plan for a peaceful life, especially at those times of the year when you need to sort out all your paperwork; do yourself a favour and plan to do things right today.