When you record your business costs in FreeAgent, it’s important to know which costs to post as expenses, which to post as bills and which to post as bank payments. Here we explain the difference between these categories.
You should post a business cost as an expense (short for “out-of-pocket expense”) if you or one of your colleagues paid for the cost yourselves, perhaps with a personal credit card or cash. Remember to allocate the expense to the correct user in FreeAgent.
It’s important to record expenses accurately. Your business is entitled to tax relief on the expenses you post, as long as they are bona fide business costs. The business can also repay you for incurring those expenses and you won’t have to pay any tax on the repayment. If the business overpays you for expenses, however, (i.e. it pays you back more than you’ve personally spent on its costs), you could owe extra tax, unless you’re a sole trader or partner.
Any costs that you paid for with the business’s credit card or cash should be posted as bank payments, rather than expenses (see below for more information).
The bills area in FreeAgent is where you record costs that you’ve already incurred but haven’t yet paid for. You should post a cost as a bill if your business is going to pay for it directly from its own bank account in the future. For example, if your solicitor gives your business a bill that’s payable in 30 days’ time and you don’t pay for it immediately, you should record it in FreeAgent as a bill. You can see unpaid bills arranged by supplier and by date under Accounting > Reports > Aged Creditors.
You should post a cost as a bank payment when the business pays for it directly and immediately, either with cash or a credit card. If you incorrectly post any of your out-of-pocket expenses as bank payments, your bank balance in FreeAgent won’t match the balance of your bank account. A visiting HMRC inspector would then say that your records are incorrect, and you could face a fine, so be sure that the cost isn’t an out-of-pocket expense before you post it as a bank payment.