Ask a tax advisor on the topic of Business start-up

Properly document income from operations

September 1, 2015 | 25,00 EUR | answered by Ralph J. Schnaars

Dear Sir or Madam,

I recently started my own business as a provider of training courses and now I want to expand my operations. I would like to ensure that my accounting is done correctly from the beginning, so that it can withstand the scrutiny of a tax auditor in the future if necessary.

Before I get to my questions, I would like to provide some background information on my business:

I am a freelancer and I calculate my profits through the EÜR method.

My customers are exclusively private individuals. My services are exempt from sales tax according to §4 No. 21 a) bb) UStG, the necessary certificates have been obtained and are on file with the tax office.

My customers book their courses exclusively through my website and receive a booking confirmation along with a request to transfer the course fee to my bank account.

Approximately 80% of my customers pay by bank transfer, another 10% pay in cash, and the rest do not pay at all and do not show up for the training. I do not pursue unpaid course fees for various reasons. Less than one percent of customers request an invoice - in that case, I of course issue one.

Now, my questions:

How do I "financially secure" my business income? I understand that even with the EÜR, all business expenses (which is not a problem for me) and business income (which is problematic) must be documented.

I am hesitant to create an invoice for each participant and based on my research, it may not be necessary (approximately 99% do not request an invoice, no business customers, only tax-exempt services).

For 80% of customers, I have a bank transfer recorded on my bank statement (usually includes: name, course booked, payment date and amount); for another 10%, the cash payment is noted on the participant list of the course (which is kept in paper and digital form). The remaining 10% of customers are listed on the participant list as "NO PAYMENT, DID NOT ATTEND".

Is this method of "documentation" adequate to prove my business income? Are bank statements suitable as evidence? Am I documenting my cash income sufficiently?

If not, how should I adjust my documentation method?

Thank you.

Sincerely,

Ralph J. Schnaars

Dear questioner,

As you describe your approach, it is sufficient for determining your profits with an income-expenditure calculation.

Bank statements are the best medium to prove and provide evidence of anything - whether it be expenses or, in your case, income.

Since you keep participant lists of the courses, which can always verify the presence of the participants, it is very easy for someone (e.g. a tax auditor) to understand that all income is recorded in your accounting - because you have notes for those who did not attend and probably reminders (e.g. an email asking for payment) for participants who have not yet paid - so that each registration can be traced to ensure that your income is fully taxed.

I hope I could help you with your considerations.

Kind regards,

Ralph J. Schnaars

STWB Steuerberatungsgesellschaft mbH
Direct contact +49 (0)171 525 20 42
Email mail@stwb-steuer.de