Business records if you're self-employed

You must keep records of your business income and expenses for your tax return if you’re self-employed as a sole trader or a partner in a business partnership.

You’ll also need to keep records of your personal income. If you’re the nominated partner in a partnership, you must also keep records for the partnership.

When deciding what you can claim as a tax deduction, you may claim everything that is 'wholly and exclusively for business'

You will need to chose from one of the following accounting methods:

Traditional accounting

Many businesses use traditional accounting where you record income and expenses by the date you invoiced or were billed. There are lots of accounting software options that allow you to do this with ease and are not expensive. You can also keep manual records, however this would not give valuable information about how your business is performing and would entail more manual work and more chance to make errors. 

Example: You invoiced a customer on 28 March 2017. You record that invoice for the 2016 to 2017 tax year - even if you didn't receive the money until the next tax year.

Cash basis accounting

Most small businesses with an income of £82,000 or less can use cash basis reporting.

With this method, you only record income or expenses when you receive money or pay a bill. This means you won’t need to pay Income Tax on money you haven’t yet received in your accounting period.

Example: You invoiced someone on 15 March 2017 but didn't receive the money until 30 April 2017. Record this income for the 2017 to 2018 tax year.

Why you keep business records:

You need to keep records of all business expenses, sales and income, VAT records (if registered), PAYE records (if registered) and records of your personal income. 

You can start recording your expenses before you even start your business,as these are also tax deductible. 

You don’t need to send in your records in when you submit your tax return but you need to keep them so you can work out the profits for your tax return and show them to HMRC if required.

You must make sure your records are accurate.You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year. HM Revenue and Customs (HMRC) may check your records to make sure you’re paying the right amount of tax.

Keep proof

Types of proof include:

  1. All receipts for goods and stock
  2. Bank statements and chequebook stubs
  3. Sales invoices, till rolls and bank slips

If you’re using traditional accounting

As well as the standard records, you’ll also need to keep further records so that your tax return includes:

  1. What you’re owed but haven’t received yet
  2. What you've committed to spend but haven’t paid out yet, e.g. you've received an invoice but haven’t paid it yet
  3. The value of stock and work in progress at the end of your accounting period
  4. Your year end bank balances
  5. How much you've invested in the business in the year
  6. How much money you've taken out for your own use

In order to prepare your accounts accurately, we can use this information and ensure that the figures on your tax return are correct. We will always do our best to advise you how to keep your books in a way that gives you the most valuable ongoing information and also keeps admin time to a minimum, whilst giving us the most accurate account of your business to enable us to prepare your accounts.