You paid for something for the business with your own money. Now what?

Every small business does this. The card in your hand is the personal one, the hardware store closes in ten minutes, and you buy the thing. Or a subscription renews on a personal card nobody has got around to changing.

None of that is a problem. It is entirely normal, and the expense is entirely claimable. What causes problems is when it never gets recorded, because a business expense that only exists as a receipt in a glovebox is a deduction you paid for and did not get.

Here is what is actually going on, and what to do with it.

What the transaction really is

When you pay for a business expense with your own money, two things happen at once, and treating it as one thing is where the confusion starts.

1. The business incurred an expense. Deductible, and if you are registered for GST, generally carrying a GST credit.
2. You lent the business the money to pay for it. The business now owes you.

That second half is the one people miss. It is not a gift and it is not a rounding error - it is a real balance that the business can repay you, and repaying it is not income in your hands, because it was your after-tax money in the first place.

How it is recorded depends on your structure:

• Sole trader: there is no legal separation between you and the business, so it goes to owner's funds introduced. Simple.
• Company or trust: it is a loan from you to the entity, sitting in a director's or beneficiary's loan account. That account should be reconciled and understood, not left as a dumping ground.

One warning on the company version. Money flowing into the company from you is straightforward. Money flowing out - the company paying your personal expenses, or you drawing on the loan account beyond what you put in - is where Division 7A lives, and Division 7A turns sloppy loan accounts into deemed dividends. That is an accountant's conversation, and worth having before it is a problem rather than after.

Claiming the GST

If your business is registered for GST, the credit is claimable through your BAS. Two rules decide whether you actually get it.

Over $82.50 including GST, you need a valid tax invoice. Not a card receipt, not a bank statement line - a tax invoice showing the supplier's ABN, the GST amount and what was purchased. Under $82.50, a receipt showing the GST is enough.

You have four years. The claim must be made within four years of the due date of the BAS for the period in which you first became entitled to it. After that, the credit is simply gone.

Which means the box of old receipts is worth going through - but the ones from five years ago are not worth going through, and a bank statement line with no invoice behind it will not survive a review no matter how obviously business-related it looks.

What to do at the time

The habits that work are the ones that take ten seconds at the point of purchase, because anything requiring a filing session on a Sunday does not get done.

Photograph it before you leave the shop

Thermal paper receipts fade to blank within months, sometimes weeks in a hot car. A photo taken at the counter is a permanent record; the same receipt found in March is often not. The ATO accepts digital copies, and a legible photo of an original beats an illegible original.

Use the tool you already have

Xero's mobile app captures a receipt as an expense claim in about fifteen seconds and codes it as owed back to you. Hubdoc, which is included with most Xero subscriptions, does the same for anything emailed. If you use neither, a single email address you forward everything to works - the point is one destination, not five.

Say what it was for, once

A receipt for $340 at a hardware store six months ago is unidentifiable to everyone including you. A five-word note at the time - "timber, Henderson St job" - is the difference between a clean deduction and a guess. Your bookkeeper cannot tell business from personal from a merchant name, and will either ask you or code it conservatively. Neither is free.

Keep it for five years

GST records have to be kept for five years from lodgement or creation, whichever is later. Digital is fine, provided it is legible and you can actually retrieve it - which is an argument for the receipt living in Xero attached to the transaction rather than in a folder on a laptop that will be replaced twice in that period.

The version of this problem that costs more

Paying for business things personally is the harmless direction. The expensive direction is the reverse: personal spending running through the business account.

It creates the same reconciliation work, but with worse consequences - deductions claimed that are not deductible, GST credits claimed on private expenses, and in a company, drawings that were never recorded as drawings. It is also far harder to unpick after the fact, because nobody remembers in October which of the March supermarket transactions were for the office.

If both directions are happening, the fix is not better filing. It is a separate business account and a business card, which removes most of the problem permanently and takes an afternoon to set up.

The practical version

Photograph the receipt at the counter. Note what it was for. Put it wherever your bookkeeping lives, the same day. Get a business card so it happens less often.

That is the whole system. Everything else - the loan account, the GST credit, the coding - is our job, and we can only do it from records that exist.

If your receipts are currently a shoebox and a vague sense of unease, catch-up bookkeeping is exactly the service for it. If you would like the process to run properly from here on, setting Xero up correctly is where that starts. Either way, have a chat with us first.

General information only, current as at the date above. Structure-specific questions - particularly anything touching Division 7A - should go to your accountant.