Bank Payments Book

This records all the money that you pay out of your business bank account regardless of where and who it is paid to. It is also used to calculate the amount of VAT paid on purchases

The bank payments book is written up as follows:

  1. In the first column write the date that the money was paid out on. This is usually the date on the cheque.
  2. In the second column write the name of the person who was paid.
  3. The next column records the cheque number. The bank payments book should be written up in the cheque number order from your chequebook. Switch and other card payments, direct debits, standing orders and bank charges should be entered into the bank payments book from your bank statements at the end of the relevant month after all the cheques have been entered. These are shown as being paid on the bank statement.
  4. The next column refers to the reference number of the bank payment. You should have a supporting invoice in respect of your bank payments and you should reference these consecutively according to the date on which they are paid.
  5. The next column is used as the “total” column. This is the total amount paid.
  6. The next column is the VAT column. If you were charged VAT on the invoice being paid then the amount of that VAT is written in this column. If the payment relates to an item on which there is no VAT charged then the VAT column should be left blank. You must not claim back VAT unless you have a proper VAT invoice relating to expense showing a vat number etc. For a detailed list of what information should be shown on a VAT invoice see page 36. Invoices from retailers do not have show from retailers do not have to show your name and address or the separate VAT element of the purchase if they are for less than £100. If there is a VAT number on the invoice but the VAT has not been calculated you can work out how much VAT is included by multiplying the total invoice value by 1/6 so long as you can reasonably believe VAT was charged. See page 37 for details of when VAT is charged but cannot be reclaimed by you.
  7. You should then analyse your expenditure using as many columns as you need for your business. The figures in these columns will be net of VAT, i.e. they are the total paid less any VAT included in the invoice. So, for example, if £23.50 has been paid and £3.50 of VAT column then the net column has £20 in it.
  8. There will several types of payment for which VAT is not applicable, such as salaries, payments to you, bank charges, etc. in that case the value of the total column is the same as the value of the net column.
  9. Underline the last entry for the month and then add up all the columns. The total of all the net analysis columns together with the VAT column should add up to the total column.

What does the bank payments book look like?

Something very much like this:

Things to note about the bank payments book:

  1. Make sure you keep copies of all your invoices, agreements, and card vouchers to support payments made. The last items are really quite important now that cheques are being used less and less.
  2. The above example happens to have cheque payments in the same order as the document reference numbers. This does not need to be the case. For example, if you number the invoices to be paid when you get them you may not actually pay them in the same order as their arrival, so these numbers will not run in sequence. That is fine, just so long as you make sure you have continuous sequence in the end and there is nothing that has been lost on the way.
  3. Ideally you’d use more columns than are shown in the example. Many accounts books have upto16 available and spreadsheets can have virtually unlimited number. If a description appears often in the sundry column then it probably needs a column of its own, and so add it in the next month. For example, in this case it may be worth having extra columns for courier costs, rent phone costs and the cost of buying new equipment. Ideally illustration would also not be lumped in with materials but be shown separately. Using more columns always helps us.

What does the bank payment book tell you?

The bank payment book tells you:

  1. Who you have paid, and what for.
  2. The total VAT that you can reclaim from customs and excise for a quarter. To find this out add up the VAT column for the quarter covered by your VAT return.
  3. How much you have paid yourself.

What doesn’t the bank payment book tell you?

  1. It doesn’t say who you owe money to. This is because you are writing up your invoices as they are paid, not as the liability is incurred.
  2. To overcome this you should always maintain two separate files of purchase invoices, one being the unpaid purchase invoices and the other being paid invoices. The total value of all purchase invoices in the unpaid invoices file is the total you owe to people at any time.
  3. Always make a note of just who is unpaid, and for what amount, at the year end date even if you don’t at any other time. We will need this information.

For further information, please contact us on 03332 401 333 or email