What
You must keep records of your business income and expenses for your tax return if you’re self-employed as a sole trader or as a limited company.
Why
Getting on top of keeping good records from the outset is essential, so you aren’t overwhelmed later on, and can keep track of when invoices have been paid, when bills are due, what costs you’ve incurred, and to help you understand the health of your business.
You’ll need to keep records of:
- all sales and income
- all business expenses
- VAT records if you’re registered for VAT
- PAYE records if you employ people
- records about your personal income
- any grants, if you claimed through the Self-Employment Income Support Scheme
You’ll need to keep things like:
- all receipts for goods and stock
- bank statements, chequebook stubs
- sales invoices, till rolls and bank slips
- any other records you need to keep
If you’re a limited company, you’ll also need to keep:
- records about the company itself
- financial and accounting records
In a few years (from 2026 for businesses with turnover over £50,000 for example), all self-employed individuals will be required to keep these records digitally, using HMRC approved software, under some new rules called “Making Tax Digital”, so it makes sense to start using an approved tool now, and start good habits.
You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year, i.e. if you sent your 2022-2023 tax return online by 31 January 2024, you must keep records until at least the end of January 2029.
HMRC can charge you a penalty if your records are not complete and accurate.
How
1/ Find a suitable system or tool to keep your records - check that it’s HMRC approved, so you’ll be able to continue using it when MTD comes into effect for your your business. These include popular tools like FreeAgent, QuickBooks, Sage, Xero, as well as free tools like Zoho Books and Pandle etc.
2/ Start tracking any business costs you incur and related receipts - make sure you’re keeping any physical receipts and records in a safe place, and scan them into your system, so you have a digital copy too.
3/ Keep track of your income too, such as the sales invoices you send to customers, or any records of sales or other income.
4/ Keep any information showing any use of your private things used in the business (for example, mileage logs for a vehicle used both in the business and privately, use of your home for business purposes, etc).
5/ Do this on a regular basis, rather than leaving it all until the end of the year - perhaps put aside a few minutes each week to keep on track of your record keeping.
6/ Consider working with an accountant to ensure you’re keeping good records, and to get advise on what records you need to keep.
