How to use your journal for accounts records
Blog post #123
Continuing to work with your journal keeping plus more.
Are you still managing to use your journal? I hope so, but if you’re not don’t feel bad. Personally, I have had a few very difficult weeks with elderly family members and their needs taking up a lot of my time. There have been weeks when I didn’t even pick up my journal but there have also been weeks when, had I not done, I would have been in an even greater mess. It really is worth preserving with.
So, this month I wanted to remind you to keep using it to record all the things you need for future events but don’t stress out too much if you can’t. As a nation, actually as a world, we are more stressed than we realise, so be kind to yourself.
Now this is important. I bang on about it every year and sometimes I manage to get through to a small number of people, but I hope I can make a few more of you jump on the bandwagon. I promise you will thank me in the end.
31st January was the deadline for sole traders to get their accounts in to HMRC and I know many of you left it all to the last minute and did it in a panic. I want to help you get organised so that next year’s accounts will be a doddle to do. And if you are sitting there thinking this doesn’t apply to you because you only sell a few paintings each year, stop. If your annual sales are over £1,000 you are required by law to fill out a tax return.
I can’t advise you on how much tax you might have to pay but if the only income you get is from your art, then you won’t pay National Insurance until your turnover is £6,000+ and tax isn’t due until it is over £11,500 (I think that is the current threshold, but you would need to double check as it does change most years). Clearly, if you have income from a job, pension, or something else, all these figures need to be added together and HMRC informed. If you are caught, they can make your life a misery, so it really isn’t worth trying to get away with. These days, HMRC are really helpful so if you have any concerns, just phone them and they will be able to give more accurate and up to date advice.
I used to advocate doing your accounts every month but, in reality, life gets in the way and so I do mine once a quarter. That gives plenty of time for credit card bills to arrive before finalising the annual figures. It doesn’t matter when you have set your year end, everyone is different, but we all know that our figures must be in by 31st January and that’s it. In my case my year end runs concurrently with HMRC’s year end, i.e. 5th April.
When I produce the final figures for the year to 5th of April, which is normally around June/July, I then file them with HMRC. Yes, six months ahead of time I file my returns. Why? because anything could happen between my financial year end and the 31st January when my accounts need to be in. There are penalties if you are late, but there is nothing to stop you from being early.
How I go about it (and you could, too, if you wish) is to just do three months accounts at a time. Yes, if you are super disciplined or have busy sales, then monthly is the only way forward; you won’t remember what those receipts in the shoe box are for, one year later, I guarantee. And if you are that busy it might be worth finding a bookkeeper who will charge you by the hour, to do them for you. But the rest of us, particularly during the lockdowns, have had sporadic sales so setting yourself up to produce your accounts quarterly is just fine.
How you record them is a personal choice. Many people are happy to stick with the old way of doing it, using a cash book. WHSmith still sells these so a lot of people are still happy with this method. For those who are “tech savvy” and enjoy using computers, there are several bookkeeping systems, e.g. QuickBooks, Sage etc., that will enable you to produce ledgers and fancy spreadsheets, which if you are an expanding business and hope to have lots of sales could be great, but I expect you will still avoid using them in a timely fashion. Still, a bookkeeper might be happy to use it for you.
I use a series of spreadsheets. For those who don’t know me, I was previously an accountant, so I am experienced in using spreadsheets and linking them together to produce a final set of accounts, though my system is more complicated than most and doesn’t need to be. By setting up a page per month on the bottom tabs of a spreadsheet you can simply add all the sheets up at the end to give you your final figures.
A word of warning when setting up spreadsheets is to make sure that you create cross checks on the sheets. By this I mean make sure that your totals cross reference each other (see the Xcheck column in the illustration below) so that you know you haven’t missed anything out.
I used to have an electronic reminder on my calendar, but I just ignored it. Now with the journaling system I have in place I have marked up the four times each year when I need to look at this and then also record that on the first week of the relevant months so that I don’t miss it. Your journal will help you to keep a track of what events you have coming up; what expenses are likely to arise and if you record these events in advance it will also help you to keep a track (and keep ahead) of what’s needed.
If you have stuck with this post this far, thank you. I will take it that you do want to avoid that horrible last-minute panic when your returns to HMRC are due. Maybe think of it this way. If you are selling your art on a regular basis and it is your intention to continue to do so, you have a business. Having a business means that you need to produce proper records. Keeping proper records and staying on top of what your income and expenses are keeps you in control of your business.
When you have all of this under control it will free you up mentally to get on with the business of making art, simply because you will know exactly how much money you need to spend, how much you need to put to one side for the tax bill and how much you can use to pay yourself.
I pretty much know what purchases I need to make to produce work and what income I am due to receive through commission pieces. What I don’t know is how many sales I will make at an exhibition but if I do really well at one, I will do a catch up of my accounts within a couple of days of that show ending. So far this year my exhibition sales have been low, which is why I haven’t written up the records yet.
There are lots of records we need to keep to make our lives easier.
Suppliers stock lists. Create a list of supplies you use and make a note when you used something up. You wont forget to include those items you need if you have kept a proper stock list.
Artwork stock list. A lists of your artworks ready for sale with all the titles, sizes, prices etc. on them. That makes it easier to keep a record of sales which you will need for your accounts.
Customer information, i.e. who bought what and when, their contact details so that you can let them know when you are having your next exhibition and if appropriate send them a free ticket or an invite to the private view.
The detail of these other forms of record keeping will be discussed at length another time. For now, I hope you will see that taking the trouble to tackle your accounts, and to stay on top of them, will help you in the long run to make your life feel better.
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