INVOICES FOR PURCHASES
You should receive an invoice from your suppliers for all purchases and expenses, including credit card purchases. Keep all these invoices so that you claim for these expenses as a deduction in your income tax return. Make sure that you keep the invoice. Don’t send it back to the supplier with your remittance advice and payment. If the supplier sends you a monthly statement, keep that too if possible.
If you receive regular supplies from a supplier, it is a good idea to tick off all the invoices you have received against the supplier’s monthly statement. That way you can make sure that you are not paying one invoice twice.
Sort your expense invoices into those that you have paid and those you haven’t paid yet. Store those that have been paid with any paid monthly statements in cheque number or date paid order. Write the date, amount of payment, and the cheque number on the statement or invoice. Label the file you store the invoices and statements in as “accounts paid”.
Store the invoices that have yet to be paid in a separate file, until they are ready for payment. Depending on trade terms this could be seven days from the date of the invoice or thirty, sixty or ninety days after the month stated on the invoice. Call this separate file “creditors” or “accounts payable”.
Many businesses operate a petty cash system which is used for small purchases of general day to day expenses. You will need:
- A petty cash tin to keep money in;
- Petty cash dockets which are written out for every purchase;
- A petty cash book to record expenditures.
To start the system, write-out a cheque for cash, recording it on the cheque stub as “Petty Cash”, and put the cash in the petty cash tin. Make sure that you receive a receipt for each petty cash purchase you make, and that you fill out a petty cash voucher. Record the purchase, with the type of expense in the petty cash book, and keep a running total. Balance the petty cash book with the actual amount in the tin weekly, to make sure it reconciles. If you do not use a petty cash system, but you make occasional cash purchases you must keep records of your transactions.
MOTOR VEHICLE EXPENSES AND BENEFIT
If you are a sole trader or in a partnership and you use a vehicle in your business, you must apportion the running costs of your vehicle between business and private use. You will need to make an adjustment for income tax purposes.
You must keep a logbook on a daily basis to work out the business share of the running costs. You can use an exercise book or buy a logbook from any Stationery store. Record the distance, date and reason for the trip in the logbook, upon filing your income tax return the yearly expenses of the business can be claim.
When a company owns a vehicle, it claims all the expenses without making a private use adjustment. However an assessable benefit arises on the employee for private use when the vehicle is provided by the employer or by some other person for employment purposes.
The Department calculates the assessable benefit as shown:
I. Employer Owned Motor Vehicle
a) Where a motor vehicle is purchased locally, the assessable benefit is computed as 15% of the listed selling price of the motor vehicle:
15% (motor vehicle selling price)
b) Where a motor vehicle is imported into the country directly or indirectly by an employer, the assessable benefit derived by an employee is calculated as 15% of the landed cost of the motor vehicle plus all local charges:
15% (Landed cost + Local charges).
"Landed cost" is defined as all charges incurred out of St. Lucia
II. Leased Vehicles
The assessable benefit is computed as 40% of the leased cost to the employer.
40% (leased cost to employer).
It should be carefully noted that the assessable benefit computed under calculation I. (a. or b.) above remains the same, whether or not a vehicle assigned to an employee is used by other employees from time to time.
HOME OFFICE EXPENSES
Some people may run a small business from their homes, or people who run small businesses may use an area set aside in the family home for work purposes. If you are doing this, and you wish to make a claim you must:
- Have set aside an area especially for business use (such as an office or storage area)
- Keep a full record of all expenses you wish to claim.
The responsibility for keeping invoices and records for a home office is the same as for any other business expenses you are claiming. Therefore if you wish to make a claim on a portion of the rates, insurance, power, maintenance or a portion of the mortgage interest, you will have to keep invoices for these expenses. This also applies to any telephone calls you make from your home phone.
It should be noted that the Department would only allow claims which are reasonable and were incurred wholly and exclusively for the purpose of producing assessable income from that source.
A good way to substantiate the business portion of your travel expenses is by keeping a diary of your travels. In addition to invoices and tickets you should also keep the following details:
- The reasons for the trip
- Date of the trip
- Your itinerary
- The cost of car hire, air, bus and taxi fares
- The cost of accommodation, meals and incidentals
- Portioning of the trip that which is business and non-business related.
In addition to keeping records such as invoices or receipts to support your claims for business entertainment expenses you also need to record:
- The date the expense was incurred;
- The name and position of the person you entertained;
- The name of the company that person represented;
- Reasons for entertainment.
To help you keep the required records you may wish to review your accounting system, so that it provides the following:
- A record of how much you spend on food, beverages, recreation and any transport and accommodation associated with these;
- Details of food and beverages provided (except cafeteria open to all employees).
You need to keep records of other expenses that have a private use portion. These may include utilities, motor vehicle expense and interest paid. These will help determine the personal element of the expense.