Record Keeping for the Self Employed

Why keep records?

Not only do you have a legal responsibility to complete a self-assessment tax return each year, supported by adequate accounting records, there are some very good reasons why you should ensure your records are accurate and up to date:

• they will help you control and grow your business – up to date information will help you make key decisions and assist with cashflow management
• you will know who much you are owed by your customers and how much you owe to your suppliers
• easier production of accounts, not just at year end but throughout the year – you will be able to assess if you are making or losing money
• it will be easier to obtain external finance (eg bank loan or overdraft) – lenders will have more confidence in you
• time spent by your accountants will be less, reducing their bill or allowing them more time to help you get more value from your business
• completion of your self-assessment tax return will be much less stressful, submitted on time, preventing penalties! All your expenses will be taken into account, reducing your tax bill
• all your important information will be at hand

What records do I need to keep?

The types of records required will depend upon the size and complexity of your business and the nature of tax that you pay. Typically, the records for your tax return must include:

• as a minimum a cash book and petty cash book
• a record of all your sales and takings (sales invoices, till rolls, bank statements and paying in slips)
• a record of your purchases and expenses (purchase invoices, receipts, bank/credit card statements, cheque book stubs), including assets that you have bought, eg stock and equipment
• details of any stock and/or work in progress at the end of your accounting period and any stock taken for private use
• details of any payments made to employees (wages, benefits, expenses). You may use a payroll bureau to help processing
• business vehicle and travel costs – a record of car mileage split between private and business
• interest from any bank and building societies
• any other money coming in to your business (eg private cash etc)

The system you use may be paper or computer-based. A computer-based system should be backed up on a regular basis to reduce the risk of lost or corrupted data (it is your responsibility to make sure you have the necessary information to complete a tax return). You may use a spreadsheet, one of the many simple mobile record keeping apps (a few examples can be found via this link to HMRC http://www.hmrc.gov.uk/softwaredevelopers/mobile-apps/record-keeping.htm or a commercially available accounting package. Whatever system you use, it needs to be effective from the start – contact us for more information.

Your records should be kept up to date on a regular basis. The frequency will depend upon the number of transactions but not less than monthly.

If you use a bank account it is recommended that you hold a separate one for business so that you can keep personal and business transactions separate. If you operate as a limited company or limited liability partnership the business will be a separate legal entity and must have its own bank account.

If you are using “cash basis” and/or “simplified expenses” you must keep records of:

• business income received
• business expenses paid

Depending on what you use simplified expenses for, you need to record business miles for vehicles, hours you work at home and how many people live on your business premises over the year.

Records, in general, should be kept for 6 years following the end of the accounting period to which they relate. For personal, self-assessment tax return purposes, records should be kept for 22 months following the end of the period.