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.
