If you are self employed, you must keep records of all the money you receive from selling your products or providing your services, alongside purchase invoices and receipts to reflect your business outgoings.
It is crucial to maintain complete and accurate business records not just to file your Self Assessment tax return each year, but to limit the likelihood of a Business Records Check or some other form of compliance intervention from HM Revenue & Customs (HMRC).
Thorough business records also impress lenders, if you ever need to raise finance to build and grow your business.
You, the business owner, need to keep good records to understand how your business is doing. With incomplete records, how can you tell what money you can draw from the business to pay yourself?
Keeping complete and accurate business records is very important.
Records to be kept
Every business, whether a trade or profession, is different but as a general rule of thumb, money coming in needs to be recorded, as does money going out.
Money coming in
Whether you are running a retail outlet and using a till, or raising invoices for work done, here are some examples of the records which need to be kept:
- All till rolls or sales invoices raised for work done
- A cashbook
- Business bank account statements
- Business paying in books
- Credit/debit card streamline statements
Money going out
To qualify as allowable expenditure, the cost incurred must be ‘wholly and exclusively’ incurred in the performance of the business. However, some expenditure is used for a mixture of business and private use, such as petrol in a car used for both business and private journeys and additional records are required to note the business/private split.
Some examples of the records which need to be kept include:
- Business bank account cheque book
- Business credit card statements
- Purchase invoices to reflect assets, stock and/or materials bought
- Petty cash receipts to evidence smaller items of expenditure
- Petrol receipts and a mileage log
- A record of money taken from the business as drawings and any stock or materials taken from the business for own use
Storing the records
Business records can be maintained in paper format or using specialist accounting software. Our Guest Bloggers, Sage, are one of the market leaders in this field www.sage-exchange.co.uk
If your business records are in paper form, you will need to keep the records somewhere dry and out of bright light, to minimise fading.
If your business records are kept electronically, all of the information must be captured in a readable format, with both sides scanned.
Keeping the records
Business records need to be kept for 5 years following the online filing date, regardless of whether your tax return has been filed online or in paper format.
For example, we are currently in the 2012/13 tax year. Your 2013 Tax Return has to be filed by 31 January 2014. So, the business records which form the basis of your 2013 tax return have to be kept until 31 January 2019.
The deadline changes if your tax return is filed late and may need to be kept for longer if your tax return is selected for enquiry.
The guidance contained on the HMRC website can be viewed here http://abytx.co/IAhYEd
HMRC has produced a short video called ‘What Records Do I Keep As A Self Employed Person?’ which is available on YouTube http://abytx.co/1ishbWI
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.
- Tax Return filing dates and penalties – Day 3 of 25 days of tax tips (abbeytaxblog.co.uk)