Receipts and invoices are a vital part of record-keeping for your tax return. This paperwork is proof that the purchase passes the ‘wholly and exclusively for business purposes’ test for HMRC (Expenses if you’re self employed).
A receipt (or invoice) should include the date of purchase and a description of the goods or services purchased.
Physical receipts and invoices should be stored securely. An HMRC investigation can go back several year. Therefore, it is good practice to make a digital copy of such paperwork for three reasons. Firstly, ink can fade. This is particularly true of receipts issued from stores. Even when kept in a drawer, the receipt can become unreadable within a short time frame. Having a digital copy, protects the original information. Secondly, paperwork is easy to lose and by creating a digital copy you can store it securely and most storage platforms will allow for documents to be searched. Thirdly, it is easy to damage physical pieces of paper. Again, creating a digital copy can preserve the original information.
You can either scan your receipt or take a photo of it. Either process will typically create an image file (usually either .jpg or .png). You can store the image file or save it as a PDF. PDFs are generally smaller to store than an image file.
A common feature of finance software is to allow users to attach receipt files to transactions. This can be a great way to store your receipts. Alternatively, you can create a folder structure on your computer / cloud storage. I would suggest the following structure:
- 2104 – Apr 2021
- 2105 – May 2021
- 2106 – Jun 2021
- 2107 – Jul 2021
- 2108 – Aug 2021
- 2109 – Sep 2021
- 2110 – Oct 2021
- 2111 – Nov 2021
- 2112 – Dec 2021
- 2201 – Jan 2022
- 2202 – Feb 2022
- 2203 – Mar 2022
Having a folder for each month allows you to store your receipts and invoices sequentially and safely. Computers sort files alphanumerically, therefore if you prefix your folder with the Year and Month it will always be in the right order. If you simply named the folders after each month they would be in alphabetical order, rather than calendar order.
Providing Receipts and Invoices
Receipts and invoices are not the same things. A receipt is simply an acknowledgment of payment, whereas an invoice is a document which provides details of the goods or services purchased. In the UK, you are only required to provide an invoice if both parties are VAT registered. There is no legal requirement to issue a receipt. See HMRC guidance on this.
What To Include On An Invoice
Even if you’re not legally required to provide an invoice, there may be situations where you would like to do so. Financial packages such as Quickbooks give you the functionality to create invoices, but you don’t need financial software to do this. You can create your own invoice using Word or Excel.
Your invoice should include the following information:
- Business name
- Business address
- Contact email and / or phone number
- Invoice date
- Invoice number (needs to be unique)
- Client name
- Client address
- Description of goods / services purchased
- Price for each item
- Total cost for each item
- VAT (if applicable)
- Total value of the invoice
- Payment terms
- Payment Methods
You might want to consider including some details about what happens if the customer doesn’t pay on time. For example all my invoices state ‘Failure to pay this invoice on time may result in late payment fees and legal action’. You may also wish to include your business logo on your invoice.
if you are creating your own logo using Word or Excel, make sure you create a PDF version to send to the clients. Not only will this preserve your formatting and ensure the invoice looks as you designed it to, it also makes it harder for the client to amend the invoice.
Some clients may require an invoice if they are reclaiming the cost of their therapy through an insurance company. In this case, double-check with the client to ensure that you are including all the details they need on the invoice. For example, some companies require the client’s name to be included in the description of the service.
What To Include On A Receipt
In my experience very few clients will ask for a receipt. However, when I pay by bank transfer I like to know that the money has arrived as expected. For this reason, I always email a receipt to clients whenever I receive a payment. This may sound arduous, but I have a pre-formatted email template set up for receipts, so it only takes a few seconds to add the client details and send it off.
My receipt template includes the following details:
- Payment amount
- Payment date
- Payment method
- Session date
- Session time
My email footer already contains details of my business name and contact details.