If you’re self-employed as either a sole trader or a partner in a business partnership, you’ll need to keep accurate records of your business income and expenses for your annual tax return. Ensuring you’re consistently up to date with your bookkeeping makes it much easier to compile your tax return when the April deadline looms, rather than having a mad scramble to pull everything together at the last minute. You’ll also need to keep your records for five years following the current tax year.
One mistake many self-employed people make is to use the same account for business and personal use. It makes more sense to open a separate business account as otherwise keeping a note of which are business expenses and which are your personal ones becomes rather complicated.
So, what do you need to keep track of when you’re self-employed in order to guarantee compliance with HMRC and avoid draconian penalties?
Some of the tax and accounting records that you’ll need include:
Bank statements
Arguably the most useful record for the self-employed as these will document the majority of incomings and outgoings.
All sales and purchases information
This includes invoices and receipts including cash receipts, till rolls, electronic invoices for online sales such as transactions on Ebay or Etsy, and even cheque book stubs.
VAT records
If your taxable turnover for the last twelve months was over the VAT threshold, currently £85,000, your business needs to be registered for VAT and digital records kept for submission via HMRC’s Making Tax Digital scheme.
Expenses
A considerable number of items come under this heading which all need to be logged.
If travelling for business, fuel and other travel expenses should be documented for tax relief purposes, along with details of the date, destination, the purpose and length of the trip and mileage incurred. Train, airline and other public transport tickets should be filed, as well as details of accommodation and meals if the trip involves staying overnight.
You can even claim tax relief for the cost of professional services to support your business, such as legal and financial costs, professional indemnity insurance premiums, some marketing expenses, clothing and PPE, and even membership to a trade body. All these need to be carefully itemised as a claim won’t be considered without the relevant paperwork.
Copies of previous tax returns
HMRC requires you to keep your tax records for at least five years after submission.
Records of assets
If you purchase an item of value for your business such as a new computer or a company van, this must be recorded as it can be offset against tax payments.
Records of other taxable income
These include dividends, capital gains, rental income and commission payments.
PAYE records if you employ anyone
If your business has expanded and you’ve taken on someone to help you, there will be more documentation to file. You need to register as an employer and set up PAYE before the first payday. It can take up to 15 working days to get your PAYE reference number.
This may seem like a huge amount of information to collate over the course of the year at the same time as keeping your business going, but there are ways to make it easier. Bookkeeping software like Xero can automate your invoicing, instantly show your cash flow position and record receipts as they come in, making it much less likely that they will get lost.
At AMR Bookkeeping Solutions, we undertake bookkeeping for numerous self-employed business people to enable them to concentrate on growing their businesses and make sure their tax returns are spot on. Our expert team would be delighted to help you too – contact us on 01892 559480 or have a look at our website.
