Most of the time, you will receive an invoice when you have paid for goods or services. This invoice provides confirmation of the specified goods or services and is to be included in your business accounts, enabling you to claim VAT if applicable.

However, some businesses may issue a pro-forma invoice to receive payment prior to supplying goods or services.

What Does Pro-Forma Mean for the Customer?

Suppliers may raise a pro-forma invoice for several reasons:

• You are a new customer to the supplier.
• Concerns over creditworthiness.
• Supplier requires a commitment for manufacturing or purchasing products by receiving a payment.
• A payment in advance is required due to the costs of the goods being supplied.

Pro-forma invoices look similar to regular invoices and will generally include supplier and customer information, date of issue, goods and services to be provided, price, payment details, and terms and conditions. However, the pro-forma invoice should contain the statement “This is not a VAT invoice.”

Pro-Forma Points to Note

• A pro-forma invoice is not a legally binding document.
• There should be no invoice number listed.
• It should not be included in your business accounts.
• No VAT should be claimed.

Once the pro-forma invoice has been paid or the goods supplied, the supplier should provide the customer with a proper VAT invoice within 30 days.

Your Self-Assessment reports your taxable profit to HMRC, so it’s important to ensure you have claimed for all your relevant tax allowable costs incurred in running your business. Below are five costs commonly missed by business owners:

Work Clothing

Now this is one of those things that causes a lot of confusion for business owners, so pay attention! You are permitted to claim specific items of clothing for your business, including uniforms, specialist clothing such as overalls or steel capped safety boots, or costumes (for actors and entertainers if relevant to your business). Be aware, you cannot claim for the regular clothing you wear for work, as this could also be used for personal use.

Bank Charges

If you incur bank and credit card charges, interest, or overdraft fees, these are treated as a business expense. Note these should be entered “exempt” of VAT. If you are using cash basis accounting, you can only claim up to £500.00.

Training Costs

As long as the training is directly related to the business and improves or refreshes skills, the whole cost of the training (including the cost of the course, travel, and accommodation) can be claimed. You cannot claim for training courses that help you start a new business or expand your existing business into a new area that is not directly related to what you do.

Subscriptions

Subscriptions to trade journals or professional membership fees that relate to your job are permitted for you or an employee.

Unpaid Invoices

HMRC allows you to claim for any amount of money included in your turnover that you are not going to receive. This is known as a “bad debt,” and the only real prerequisite for including it in your expenses is that you must be sure that these invoices will never be recovered from a customer in the future.

Guide to Record Keeping for New Businesses

Whether you have been planning this for a while or your hobby has become your business (remember, any income more than £1,000 per tax year must be declared and may be taxable), you’ve taken the leap, and your passion has become your sole focus in setting up your business.

But if there’s one thing you can’t afford to ignore, its good record keeping. It might sound boring, but trust me, it’s super important.

Why Record Keeping Matters

• Financial Management
• Legal Compliance
• Tax Preparation
• Performance Monitoring

Key Records to Maintain

Money Matters: Keep all your invoices, receipts, bank statements, payroll records, and tax documents.

Customer and Supplier Details: Maintain a database of your customers and suppliers, including their contact info and transaction history. This can help with marketing and managing relationships.

Legal Stuff: Keep copies of your business registration, licenses, permits, tax filings, and any contracts. These are crucial for compliance and if any legal issues pop up.

Employee Info: Store employment contracts, performance reviews, payroll details, and tax forms. This is important for legal reasons and managing your team.

How to Keep Track of it All

My advice, no matter the size of your business (this includes sole traders), is to make use of technology and apps to your advantage with cloud accounting software. Using software will enable you to keep most of your business paperwork in one place. For other documents such as leases, licenses, etc., sign up for cloud storage to keep them all together, password and encryption protected.

My Top Tips

• Before considering software, speak to other business owners you know to see what they are using and the benefits it offers.
• Contact a qualified bookkeeper, have a chat about your business, and ask for recommendations.
• Don’t put it off – start as soon as you make your first purchase; it doesn’t take long to accrue a mountain of paperwork.
• If this side of running your business is not for you, contact a qualified bookkeeper and have a chat about outsourcing.

So, take a deep breath, get organised, and you’ll thank yourself later!

No matter what your business structure (yes, this includes sole traders), it’s essential to have a record of all your business purchases. You only have to ask my clients to know I chase them all the time to make sure we have a receipt for every one of their purchases.

I know it’s easy to forget to ask for a receipt when you are in a rush, but no receipt will have an impact on your business accounts, whether you are VAT registered or not. Here’s why:

Financial Management and Budgeting

Invoices and receipts provide a clear record of your expenditure and what specifically has been purchased, including the VAT element of the items. By having these documents, you can:

• Track spending
• Monitor cash flow
• Analyse your expenditure to help you budget better

VAT Compliance and Deductions

Having an accurate record of all your expenditure is vital for tax compliance. If you are VAT registered, the invoice/receipt will identify the correct VAT amount where applicable, ensuring your VAT return is accurate (we don’t want to be over or under-claiming). Having detailed receipts and invoices will also ensure you and your business don’t miss any deductible expenses, helping to reduce your tax liability.

Efficiency

Keeping track of your purchases can help make your business more efficient:

• Track your purchases, making it easier to manage your stock levels
• Monitor suppliers based on their delivery times, quality, and pricing
• Accurate records help with financial forecasting

In summary, those pieces of paper are vital to your business in so many ways, and it’s your responsibility to ensure you receive an invoice/receipt for each of your purchases.

If you are overrun with paperwork and need help to make sense of it all, book a discovery call to see how I can help.