Unless you are an arithmophile (lover of numbers), contemplating your pet sitting business accounts probably sends you into a mild anxiety state! The idea of submitting a self assessment tax return is enough to send most of us into a cold sweat. By my third self assessment (£600 of accountant fees later) I decided to go it alone, and I can genuinely say that it was fairly easy. For a sole trader business – providing some kind of pet care service – doing your own accounts from beginning to end, is well within your grasp.
Okay, lets clarify… maintaining your records – often called “your accounts” – is really book keeping. You definitely need to get to grips with that side of your business, so that you feel in control of your financial well-being. Generally a small business would only employ an accountant to look over the accounts at the financial year end, and submit a tax return based on the records given to them. For the average person, it’s an area shrouded in mystery and the fear of ‘getting it wrong’ can paralyze.
Hang on a second! You are a setting up your own business; a fact which immediately catapults you into the capable, motivated human being category. You can do this. Accounting isn’t any different from any other area of running a business – you just need to be well informed and equipped to feel enabled.
“Handy hint: invest in a large button desk calculator for greater accuracy.”
The benefits of presenting your own pet sitting business accounts include:
- You’ll have a deeper understanding of your financial situation, which breeds confidence and will enable you to make good financial decisions.
- You are immediately about £350 a year better off, though if you have a complex business your accountant will almost certainly pay for himself in tax relief, because he understands better than you the detail of what you can claim.
- Your intimate knowledge of your accounts will help you spot issues quickly.
- You will feel in control of your own tax and NICs because the process will no longer seem mysterious.
- You’ll learn a new (really useful) life skill.
Understanding what you’ll need to do at self assessment
In order to easily present your pet sitting business accounts to HMRC, it will help to understand what information you will be asked to provide. The self assessment tax return is essentially a record of your total business income minus your business expenses, which equates to the profit your business has generated in a single year. The tax year starts on April 6th (so ends on April 5th), with hard copy returns submitted by midnight on October 31st following the end of the tax year. Online submissions (which I can recommend) can be submitted up to Jan 31st following the end of the tax year. it does take at least 10 days to register for online self assessment, because they send you an activation code by post. So don’t leave it until January 30th to do this!
As well as income and expenditure,you will be asked to declare any other areas of personal finance, such as, other employment, interest from UK banks, rent from property, pension, state benefits, student loan and charitable giving (gift aid). If you are married or in civil partnership and have a low income in the first year of trading, you can also transfer some of your personal allowance to your partner, so that they pay less tax.
When completing the self assessment select ‘cash basis’, when asked, as pet sitting businesses (especially those that offer boarding) are based on invoices which might not be due for payment until long periods of time have elapsed. The cash basis system means that you only consider money actually received and expenses actually spent during the tax period in question.
Recording your total income is easy. Every time we make a booking we invoice the client for the service. The client pays the invoice and the service goes ahead. This is our income. So the sum total of all your paid invoices, will be the total income for the year – unless you are also selling products of some kind, in which case, all money generated from sales would be added to your business income.
Recording your expenses accurately, relies upon understanding what qualifies as an expense and how you can claim tax relief on those expenses. This is where it helps to look at how the self assessment is categorised.
Categories for tax relief on the self assessment tax return
- Accounting, legal and professional. Accounting costs and legal fees (though not if you have broken the law).
- Advertising, business entertainment costs, free samples (not entertaining clients). Not on short form, in which case include in “Other” category.
- Bank, credit card and financial charges. Overdraft fees, credit card charges (not repayments), loan interest and hp interest (not repayments).
- Car or van expenses. Worked out on either a flat rate or a % of total use based on number of business miles to number of personal miles ratio. Also parking and tunnel tolls.
- Communications, stationery and office (includes mobile, internet etc., with % of total use based on business usage to personal usage ratio).
- Cost of goods to (sell or) use in providing a service.
- Rent, rates, power and insurance
- Other – journals, trade bodies, education (and 2 above).
- Repairs and renewal of property and equipment.
- Wages, salaries, staff costs including bonuses.*
*This DOES NOT include any money that you pay yourself, use to buy personal possessions, or draw from the business.
Making these categories specific to pet sitting business accounts
It makes sense for you to use these categories from the beginning in your pet sitting business accounts to record your expenses. If you are doing this manually, then I would recommend this pre-prepared small business accounts book. It is designed for small businesses who invoice their clients, and will allow you to record income and expenditure under the same basic categories as HMRC.
If you intend to use software, you can purchase accounting software, such as QuickBooks. You would need their Simple Start package to allow you to generate e-invoices for your clients. However, I would recommend a more pet-specific software package, like Pet Sitter Plus. From around £15 per month, you can get software that will cover all of your pet business needs, not just the accountancy. Using this kind of software will allow you to become extremely efficient, reliable and professional in terms of your presentation of the business to clients; something which they value highly. It will also link all of your business admin and accounting needs together, eliminating the need to duplicate information when setting up client areas. All of this will save you large chunks of time, and since you are essentially selling your time in the pet service industry; time is money.
Looking at the categories above, lets link them to specific details that are relevant to pet sitting business accounts. The numbered list below relates to the numbered categories above and explains what you would include in each section.
- This would be accounting fees if you pay an accountant, plus any legal fees generated in the course of running your business (but not if you break the law). If you do your own self assessment (SA) this will most likely be £0
- This category isn’t on all SA forms, in which case include it in “Other”. It refers to the costs of promoting your business such as Google Adwords, your website (hosting, domain and any design or software costs), flyers and free samples (such as, something you might give away to interested parties at a dog fun day).
- This category is self explanatory. If you open a business bank account then there is usually a charge. You may also pay interest on a start up loan or credit card. You can claim tax relief on both interest and bank charges.
- There are two ways of working out car/van expenses and you need to choose one. The easiest is the flat rate, which is worked out on business miles. You record your actual business miles and then claim 45p per mile. Alternatively you can claim a percentage of your total costs. Car costs include tax, insurance, break down, petrol, MOT, servicing and repairs. If you choose this route then you don’t need to monitor mileage continually, but you will need to regularly check on the proportion of business to social usage. When you begin your business, your mileage will be a lower proportion, maybe 20% business, 80% social. Obviously this also depends on how much you use your car for other things. As you get busier – especially if you don’t use your car much, other than for the business – you might find the reverse is true: 80% business and 20% social. You can work these percentages out by monitoring your miles over an average month, but remember to keep revising this from time to time, as your business grows. When filing a return based on the actual costs, you would add up all your vehicle costs, work out your average percentage business use for the period and claim that percentage of the actual costs against tax. You can also include the full amount for tunnel tolls, public transport costs and parking charges incurred in the fulfillment of your business. NB. If you start out using the flat rate (or change to the flat rate) for any vehicle, you have to continue using the flat rate until you change that vehicle.
- Here we include the cost of all stationary, postage, office equipment (such as a printer), printer ink, plus a percentage of internet and phone packages. With any mobile, house phone, computer, broadband and similar, where usage is divided between personal and business use, you must make a percentage usage decision. So if you buy a mobile contract and you use your phone roughly 50/50 for personal and business, then you would claim half the cost of the contract. If you have a separate business phone then, of course, all costs can be claimed for that.
- Goods used for services would include your dog care equipment, treats, poo bags, leads and the like. Also equipment that is necessary to allow you provide the service such as walking boots, outdoor coat, high visibility jacket, stair gate, dog grill or seat belt harnesses for the car, crates and similar. If the life expectancy of the item is under 2 years, it goes here. Longer lasting equipment would be claimed in category 9.
- With in-home costs, we are back to working out a percentage usage. For instance, if you have 5 rooms in your house and you use two of them for 24 hour dog care, seven days a week, you would claim 2 fifths (40%) of your council tax, heating, lighting, water costs. You can also claim cleaning equipment and laundry costs. If you only took dogs for weekday day care then you would divide this again proportionately. Divide the 40% by 7 to get the amount per 24 hours and again by 3 to get the amount per 8 hours. Then multiply by 5, to get the total for 5 days. It sounds complicated but you only need to work it out once. If you generally work from home for only a few hours each week – just doing admin for a dog walking business, or the odd dog sit – then the easy option is to go for the flat rate for working at home. If you work 25 to 50 hours per month, this is £10 (per month), 51 to 100 is £18 and 101 and above is £26. if you are doing 24 hour boarding for most of the month, your hours would be around 400 per month, so you would be much better off claiming for the pro rata actual costs. Insurance in this category would be your business insurance, not house insurance which, almost certainly, won’t cover anything related to your business eg. damage to property and furniture.
- “Other” simply means anything else. This might include training, professional memberships, journals or books. On the short self assessment form (which you will use unless you have a large and complicated business model or a limited company) you’ll have to put advertising costs here as category 2 doesn’t exist separately.
- Repairs and renewal of property and equipment. This refers to business premises and equipment owned by the business, and would mainly be appropriate for companies with separate premises (like the bigger day care facilities). Most of your equipment will be small items with a short life expectancy, when in full use within your business. As such it would come under category 6. While it’s hard to get home insurance that will cover repairs to property that are due to pet business usage, you can still list these expenses (which the business will have to pay for) against tax.
- A large section of expense for anyone who doesn’t work alone is paying contractors or employees. Contractors invoice you, then you pay the invoice – so this section is just the total of those invoices for the tax period. Employees are registered (by you) into the PAYE scheme and this generates totals paid out for wages, NICs and sick pay. If you don’t have co-workers this section will be zero. It does not include anything you pay yourself – that is called drawings and is part of the business profit.
I realise that this article on pet sitting business accounts, will raise many questions, and some areas that I will be posting about soon include:
- Do I need a separate bank account?
- Do I need a business phone?
- Why contractors suit the pet care service industry.
- Using PAYE for your employees.
If you have any questions please feel free to comment below and I will answer you as soon as I am able.