Making your tax year-end easier with Xero online accounting

28 November 2017

If you’re a freelancer, sole trader or self-employed contractor, getting your receipts together to complete your income tax return can be a tedious task. But if you use cloud accounting software throughout the year, the whole job can be far easier.

Software like Xero online accounting, gives you have a web-based way to run your business accounts, plus the ability to store all your expense receipts, invoices and other business documents in the cloud – and that makes your tax year-end far easier to deal with.

We’ve highlighted 5 key ways that Xero and cloud accounting remove the hassle of your tax year-end.

1. Your accounts are online and easily accessible

Hands up if you run your accounts from an Excel spreadsheet?

In the digital age, there are plenty of options for managing your sole trader finances that don’t rely on Excel. Using Xero moves you away from spreadsheets, scraps of paper and guessing at your financial position and gets you in proper control of your financial destiny.

With a cloud accounting system:

  • Financial numbers can be seen in one place – making it easier to see your income and profits through a single dashboard.
  • Online invoicing reduces paperwork – so you can send your customers their bill as an electronic invoice direct to their email, cutting out printing and posting of invoices.
  • Revenue can be easily seen – which makes it far simpler to know how much you’re earning, and how much tax you’re likely to owe to HM Revenue & Customs (HMRC).

2. You can do your bookkeeping as you go

Keeping up to date with bookkeeping and financial admin tasks can be a challenge for a busy freelancer.

Xero has a mobile app that can be used on any iOS or Android device. That means you can log your expenses and costs as they occur and keep them recorded in a central place, meaning all your numbers are accounted for, backed up and secure.

With Xero on your mobile device:

  • Expenses can be added anytime – so it’s simple to record that coffee or petrol you just bought – removing the need for a Sunday night of keying in your transactions.
  • Transactions are easily reconciled – Xero has a live bank feed, so you quickly see your bank balance and automatically match incoming transactions with the right bill.
  • Bookkeeping is kept up to date – so the income and costs you see in Xero’s profit & loss (P&L) report show your financial position right nowgiving you real-time numbers.

3. Your receipts are stored in the cloud

Keeping track of every expense over the whole year is tricky without the right record system.

Instead of keeping all your coffee and food receipts in a shoebox (yes, some people still do this!), with Xero you can easily scan your receipts in from a mobile phone app.

With Xero as your document storage solution:

  • Paper receipts are snapped and recorded – by taking a quick pic of your coffee receipts with the Xero Touch app, they’re instantly uploaded into Xero – ready to attach with the bill.
  • Data-entry becomes automated – with apps like Receipt Bank, Expensify or the new Xero Expenses app, optical character recognition (OCR) snaps your receipts and automatically turns the image into financial data that’s pulled into Xero.
  • Admin time is reduced – using OCR and mobile apps to quickly snap and record every one of your paper receipts, invoices and bills – and saving you hours of admin time.

4. Your accountant can easily see your tax position

Xero works in the cloud, so you can invite your accountant to access your Xero accounts – giving them a real-time view of your finances from wherever you both are in the world.

With simple access to your Xero numbers at any time, your accountant can easily keep an eye on your income and profits and calculate your exposure to tax – making tax planning advice more efficient and keeping you on top of the tax you’ll need to pay.

With instant cloud access:

  • Accountants see the numbers they need – so they can advise you on how much to squirrel away in your tax bank account to ensure you can cover the next tax bill.
  • The data is already sitting in Xero – meaning there’s no running around at year-end, searching for receipts or tracking down unknown payments from months in the past.
  • Completing your tax return is simple – with Xero providing you or your accountant with the financial numbers needed to complete your income tax return.

5. You’re ready for Making Tax Digital

HMRC is in the process of moving every UK business over to digital tax accounts, with an initiative known as ‘Making Tax Digital’.

Making Tax Digital (MTD) means submitting your tax return digitally, and will hit VAT-registered businesses with turnover over the VAT threshold in 2019. But the current intention is that all UK businesses (including sole traders and freelancers) will submit their tax return digitally by 2020.

With a Xero online accounting system:

  • Accounting data is already in the digital realm – so there’s no need to convert your accounting data once MTD affects you.
  • Xero will supply the correct digital tax return templates – meaning you or your accountant can quickly and easily submit data to HMRC in the right format.
  • Your business accounts are future-proofed – so when MTD does take effect, there’s no additional work or outlay to get you compliant and submitting digital returns.

Move to the cloud and get your finances in order

If you’re looking to make your year-end and income tax return as straightforward and simple as possible, there’s real value to moving your freelance financial management over to Xero.

Not only do you get a efficient online way to manage your finances, you also reduce your bookkeeping workload and make tax year-end a more manageable task.

Xero also has a huge resource of small business guides that will help you refine, improve and grow your sole trader business too.

Take a look at Xero’s guide for sole traders here

Who are FD Works?

We’re a progressive team of accountants based on the outskirts of Bristol and Bath. We partner with startups, scaleups and established firms across a variety of sectors. We help the business owners we work with take control of their numbers and realise the true potential of their business. 

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