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What Records Should I Keep for Taxes?

Andre Spiteri
young woman at home office desk looking over receipts and tax records|woman looking at receipts: What Records Should I Keep for Taxes

While you don't need to file copies of your business records with your self assessment tax return, you're still on the hook. Keeping good records is super important when you're self employed, because it makes it easier to work out your taxable profits and complete your self-assessment tax return.

What records do I have to keep if I'm self employed?

If you're self employed as a sole trader or partner in a business partnership, you have to keep two main categories of records:

  • A record of all your transactions, both income and expenses
  • Documentary proof

If you're a nominated partner, that is the partner in charge of a partnership's tax affairs, you must also keep these records for the partnership. Different record keeping rules apply if you trade as a limited liability company.

What are the HMRC requirements for business records?

More to the point, however, HMRC may decide to audit you. In which case your records will be crucial in showing you've been doing everything by the book.

Here's a look at HMRC's record-keeping rules and what you need to know about them.

What are the accounting methods for business records?

When it comes to record keeping methods, HMRC don't have a preferred format. You can keep them on paper, in an electronic document (an excel spreadsheet, for instance) or use accounting software. That said, your records must be complete, accurate and readable.

You must also use one of these two accounting methods to record your transactions:

Traditional accounting

Here, you record your income and expenses on the date of the invoice.

So, if your internet provider bills you on the 4 April 2017, you record the expense on that date and deduct it from your income in the 2016/17 tax year. Even if you actually pay it on the 8 April.

Cash basis accounting

Here, you record your income and expenses on the date you actually pay or get paid. You can only use this method if your income is £150,000 or less.

Using our previous example, you'd record your internet bill as an expense on the 8 April - the date you actually paid it, not the date of the invoice. In turn, you'd deduct it on your 2017/18 tax return.

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What documents should I keep as proof of income and expenses?

HMRC advise that you should keep a record of:

What records should I keep if I'm using a traditional accounting method?

If you use the traditional accounting method, you'll also need to keep some additional documents:

  • Invoices you've issued but which your clients haven't settled yet
  • Invoices you've received but haven't paid yet
  • The value of the stock you haven't sold and any work in progress, that is work you've started in one tax year but will finish in the next
  • Your bank balance at the end of the tax year
  • A record of the amounts you've invested in the business
  • A record of the money you've taken out of the business for personal use

What records should I keep for mileage?

If you plan to claim motor vehicle expenses, you'll need to keep a mileage log. This should include:

  • Dates of journey
  • The purpose of the trip (business or personal)
  • The start point and destination
  • The total miles travelled

An app like MileIQ makes it easy record your trips and has all requisite info required by HMRC.

How long should I keep my tax records?

You have to keep most of your business records for at least 5 years from the 31 January submission deadline. So, you'll have to keep your records for the 2016/17 tax year at least until the 31 January 2023.

The time-frames are longer for VAT documents. You'll need to keep these for at least six years. And, if you use the VAT MOSS service, you have to keep VAT records for 10 years.

However, these are all minimum time frames. In other words, it's the least you can keep your records for. An HMRC audit can go back up to 20 years if they suspect you made a deliberate mistake. So, it's probably best to hold onto your paperwork for as long as you can.

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