How to track and keep on top of business expenses
Discover how to gain better control of your business expenses to keep your accounts compliant, improve your profit margin and keep your tax bill to a minimum.
What are business expenses?
Any expenditure your business makes is classed as an expense. Expenses include:
Fixed costs: for instance, rent on your business premises and insurance
Variable costs: these change from month to month, like your energy bill or bank charges
One-off costs: such as office stationary or an employee’s travel on behalf of the business
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Why is it important to track business expenses?
There are many good reasons to closely monitor your business costs. These include helping you to:
Manage costs more efficiently
Stick to budgets
Increase your profitability
Spot fraud
Provide accurate accounts to HMRC
Reduce your tax bill
What is the best way to track business expenses?
When searching for ways to track business expenses, look for methods that ensure your bookkeeping is accurate and up to date. If you’ve not done so already, open a business bank account and consider applying for a business credit card to ensure that all your business transactions – including expenses – go through dedicated channels.
Once you’ve done that, find a means of recording your expenses in a consistent manner – typically a spreadsheet or accounting software. Use categories to help view and manage your expenses efficiently, with proof of purchase (whether through your account statements or electronic copies of receipts) stored alongside them. You can then offset certain expenses against your business turnover when you complete your tax return, reducing the amount of tax you have to pay.
How to keep track of business expenses
Set up business accounts
If you’ve not yet done so, open a business bank account and consider applying for a business credit card.
Choose an accounting system
This is basically a straight choice between:
Cash accounting: income and expenditure are recorded when they are received or paid
Accrual accounting: income and expenditure are recorded when they’re earned, even if payment hasn’t yet been made
Pick accounting software
While you can track expenses on a simple spreadsheet, a dedicated accounting package offers more features, like automatic reconciliation and expense tracking.
Connect software to accounts
By linking your business accounts to your accounting package, you can ensure all transactions are recorded automatically and accurately.
Record expenses promptly
If you don’t link your accounting software to your bank accounts, get into the habit of recording all expenses as soon as possible to ensure your accounts remain up to date.
Track with an app
Consider using a dedicated mobile app for recording expenses – your accounting package may offer one as an add-on. This enables you to track expenses on the go, plus photograph your receipts so you can file them digitally.
Set up business accounts
If you’ve not yet done so, open a business bank account and consider applying for a business credit card.
How to reimburse expenses
It’s not always possible to pay all your business expenses through a single account – for example, other people (such as employees or family members) may purchase items on behalf of your business. These should be reimbursed to the individual concerned from your business account to ensure the payment is recorded there. Establish a consistent, logical system, such as:
The person who made the purchase submits a claim (including receipts)
Business reimburses that individual
Cost is recorded in your accounts package or books
Receipt or proof of purchase is filed (this is particularly important if you plan to offset the expense against tax)
Can I put anything on business expenses?
All costs related to your business can be recorded as an expense, but not all of them can be offset against tax. Only those costs deemed necessary for the running of your business are allowed. You cannot claim for anything you or your employees use personally, and some expenses that you pay on behalf of employees may be classed as benefits, which come with different rules and may require you to pay tax and National Insurance on them. Examples include company cars, childcare, travel and entertainment expenses and health insurance.
Tips to better track business expenses
There are many ways in which you can improve the way you record and track business expenses. For example:
Put a budget in place: Organise your monthly (or annual) expenses into categories to help you predict future spending based on past costs
Periodically review your business expenses: Perform a regular audit to check everything is in place, and that the method you’ve chosen for recording them (automatic, manual, or on a schedule) is still the best one
Measure your financial knowledge: and choose an accounting system or software that meets your needs and experience
Consider hiring a bookkeeper or accountant: If you struggle to keep on top of costs, paying a specialist to manage your expenses alongside other financial aspects of your business is probably a good idea, and could even pay for itself through better control of your costs as well as in other areas (such as reducing your tax bill). You can hire help on a freelance or contractual basis, and many bookkeepers work remotely so won’t require office space. Research different types of specialists online to find the best fit for you
Take advantage of perks: Paying expenses through a dedicated business credit card can offer additional benefits, such as cashback on purchases
FAQs
What are expenses in business terms?
These are the costs of running your business. They include both fixed expenses, such as rent and salaries, as well as variable expenses related to production and/or sales, such as energy bills or unit costs. These costs can also be broadly divided into two types: operating costs related to producing your products and services, and non-operating costs, such as bank charges and taxes.
What expenses can I claim on tax?
Any expense deemed as tax-deductible by HMRC. For a definitive list, see the HMRC website for both self-employed individuals and small businesses.
How long should I keep receipts for?
HRMC recommends you keep records for at least 22 months after the end of the tax year they relate to.
What’s the difference between cash and accrual accounting?
With cash accounting, you record your income as it’s received, while expenses are recorded only when they’re paid. Accrual accounting records the date that revenue is earned and expenses are incurred, even if they’re not paid at the same time.
What deductions can I claim without receipts?
While it’s technically possible to claim certain types of expenses – so-called “simplified expenses” like vehicle and home office costs, or standard allowances like the Annual Investment Allowance (AIA), it’s still a good idea to keep some kind of record, even if it’s only a bank statement with the cost recorded on it.
How can I track my business expenses for free?
There are several free accounting packages, such as GnuCash, which can be used for manually recording expenses and other business income and outgoings.
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