Book-keeping/Accounting/Tax Question

likelyfran · 19 February 2018 at 6:44PM

Hello,

Apologies and please let me know if this is not the right place on the forum to ask this.

I am an etsy seller in second year of business as sole trader.

I have been keeping records in a way that makes sense to me, and doing my own accounting so to speak - keeping all physical receipts with online purchases having corresponding proof of purchase in email etc.
Of course Etsy keeps an accessible record of sales/money gone to bank etc.

Thing is, I've been writing down every sale I make in a book, along with where and when I bought the item and how much for.

Is this too much detail, am I doing too much??

Is it ok to just keep all purchase and sales and bank deposit records without going into individual item details, if that makes sense?

Thing is, I'd like to start making up 'lots' to sell, from different purchases/days/years and then it all seems terribly complicated. :think:

I submitted my first tax return online (eventually!!!! system ...) and that made me think it's actually all quite simple and maybe I'm making needless work and complication for myself.

Hoping this all makes sense and is easily answered by someone - thanks in advance!

Tealblue · 19 February 2018 at 6:51PM

Some people would call you meticulous, others would see it as OTT - somewhere in the middle is probably about right. Much depends on the scale of your etsy activities. If your turnover is a few hundred a year, even if most of it is profit, nobody is going to get very excited; but if you are turning over thousands and claiming that your net profit is minimal, HMRC might well ask why your expenses are so high - and that's when you would need to be able to provide detailed evidence of sales, expenses etc.

Really useful info at https://www.gov.uk/self-employed-records

likelyfran · 19 February 2018 at 7:17PM

Thank you so much.
I think I can simplify it then.
I think maybe I've got confused by seeing sale items on ebay etc. over the years where people put 'codes' at the end of the item title - for themselves.
Think I've translated that as 'you need to match every individual item to a receipt and record that' - but maybe it's simply so they can locate stuff once it's sold (another pandora's box!).

So, for instance, if I bought an item in 2015 and sold it in 2018, my record would presently say eg. purchase 10/02/15 - ebay - 5.00, sold 09/09/18 - 10.00, ie. recording profit on each item and making each item traceable to purchase proof.

But ... if I'm starting to understand it better - I only need to be concerned with matching everything I've purchased in a tax year, £total-wise - to everything I've netted, £total wise, in the SAME YEAR.

Am I correct? (hope so)

theonlywayisup · 20 February 2018 at 8:27AM

Your records need to be kept in 'year' format. If you buy a widget in 2017 then it goes into the purchases for 2017. If you sell the widget in 2018, then it goes in the sales for 2018.

You sound like you are overcomplicating things.

You should have your purchases in one file, sales in another and expenses in a third. These should cover the year. Then same again for next year and year after. You don't need to go back to 2017 to find the purchase of the widget for the sale in 2018.

martindow · 20 February 2018 at 10:39AM

theonlywayisup wrote: »

Your records need to be kept in 'year' format. If you buy a widget in 2017 then it goes into the purchases for 2017. If you sell the widget in 2018, then it goes in the sales for 2018.

You sound like you are overcomplicating things.

You should have your purchases in one file, sales in another and expenses in a third. These should cover the year. Then same again for next year and year after. You don't need to go back to 2017 to find the purchase of the widget for the sale in 2018.

But you do need to account for unsold stock at the end of the tax year for your closing stock figure which will be the opening stock for the following year. Without these figures you can't accurately calculate your profit in each tax year.

theonlywayisup · 20 February 2018 at 10:56AM

martindow wrote: »

But you do need to account for unsold stock at the end of the tax year for your closing stock figure which will be the opening stock for the following year. Without these figures you can't accurately calculate your profit in each tax year.

Yes and there are lots of other things - my comments were a very simplified way for the op accounting for her purchases and sales, as per her example of buying in one year and selling in the other. Rather than recording each sale against the actual purchase.

Of course we know that's not the whole story, but the point was to show you don't have to show that you sold a yellow widget from 2013 in 2018 for a £1 profit.

mrcol1000 · 20 February 2018 at 12:35PM

martindow wrote: »

But you do need to account for unsold stock at the end of the tax year for your closing stock figure which will be the opening stock for the following year. Without these figures you can't accurately calculate your profit in each tax year.

Not anymore. HMRC allow you to file a return now that is simply money in and money out. The days of balancing a double entry book keeping system have gone.

I use Excel. Record each sale (in one go at the end of the month) and each invoice for money spent. Unless you are earning so much you need to deal with VAT do it yourself.

martindow · 20 February 2018 at 1:12PM

mrcol1000 wrote: »

Not anymore. HMRC allow you to file a return now that is simply money in and money out. The days of balancing a double entry book keeping system have gone.

I use Excel. Record each sale (in one go at the end of the month) and each invoice for money spent. Unless you are earning so much you need to deal with VAT do it yourself.

That would be easier but can you transfer to this system at the end of a tax year from the conventional P&L account system that I'm using at the moment? In particular I don't want to do anything that draws the attention of HMRC.

Do you have a link to a page on HMRC's site explaining the options?

mrcol1000 · 20 February 2018 at 1:50PM

It appears you can change on your next return. Unless you have a higher income of £150k and/or a lot of stock and some other exceptions.

https://www.gov.uk/simpler-income-tax-cash-basis

likelyfran · 12 March 2018 at 3:50PM

theonlywayisup "Your records need to be kept in 'year' format. If you buy a widget in 2017 then it goes into the purchases for 2017. If you sell the widget in 2018, then it goes in the sales for 2018.

You sound like you are overcomplicating things.

You should have your purchases in one file, sales in another and expenses in a third. These should cover the year. Then same again for next year and year after. You don't need to go back to 2017 to find the purchase of the widget for the sale in 2018."

Phew - I'm so relieved, going to have to speak softly to myself and reassure that it's ok to prise my hands away from the overcomplicated record book.

But - that's so easy?? Is is really that easy?
When HMRC say we have to keep 'records' - do my Etsy shop automatically done records count as part of that?
Or do I have to notate it all separately on paper or in a spreadsheet?
I mean, I added up all my deposits into bank, all my purchase reciepts and records (stock purchases and other expenses combined in one), inputted the figures for year online on HMRC thing - is that all you have to do??

martindow wrote: »

But you do need to account for unsold stock at the end of the tax year for your closing stock figure which will be the opening stock for the following year. Without these figures you can't accurately calculate your profit in each tax year.

Ah, now I feel confuddled again. I thought profit in each tax year was simply everything going into bank in any one year, against all spendings in said year?

theonlywayisup wrote: »

Yes and there are lots of other things - my comments were a very simplified way for the op accounting for her purchases and sales, as per her example of buying in one year and selling in the other. Rather than recording each sale against the actual purchase.

Of course we know that's not the whole story, but the point was to show you don't have to show that you sold a yellow widget from 2013 in 2018 for a £1 profit.

Again, relieved. So, if HMRC ever wanted to see/check my records, I simply have to have kept all stock/other expense receipts, plus all money going to bank for a particular tax year, right??

mrcol1000 wrote: »

Not anymore. HMRC allow you to file a return now that is simply money in and money out. The days of balancing a double entry book keeping system have gone.

I use Excel. Record each sale (in one go at the end of the month) and each invoice for money spent. Unless you are earning so much you need to deal with VAT do it yourself.

That sounds good to me.
I used a Libreoffice spreadsheet system just to enter some lists of things - very handy for totalling instantly (I got my head around learning how to do that much) - I don't think I'm able to get much more complicated than that.

Thanks for the help, everyone, much appreciated.

DigForVictory · 12 March 2018 at 4:13PM

Just to be sure you've got everything, I'd have all my etsy transactions downloaded & stored where I could put my hand on them easily, even if the internet were to have a wibble.

Likewise bank statements.

I'd rather store data & not need it than need it & not have it.

Book-keeping/Accounting/Tax Question

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