If you are a self-employed either as a sole trader or as a partner in a business partnership you must keep records of your business activities. Here is a short summary of the bookkeeping requirements for sole traders:
Income and Expenses
For your tax return you will require records of all business income received and any relevant business expenses incurred. Other personal income details will also be required and this is income that you receive that is not related to your business activities so for example interest payments on any savings you have.
When recording your income and expenses you can do this either on the traditional accounting basis where the date you sent an invoice or were billed for an expense are the dates you work on. Or you can work on a cash accounting basis where you use the date you paid the bill or were paid by a customer. It doesn’t matter to HMRC which one you choose to use but you cannot mix the methods up during one tax year. Your accountant will be able to advise the method they think is most appropriate for you.
What Records to Keep
You must keep records of all sales and income, all business expenses, your VAT records if you are VAT registered, and payroll records if you have any employees and as mentioned above any additional personal income.
The records are not sent with your tax return but allow you to calculate your profit or loss and must be accessible to HMRC if they request an inspection.
Proof of an expense is required so you must keep receipts or invoices plus your bank records to show when payments were made and to whom. Also you must keep copies of all the invoices you issue or till rolls if you are working from a shop. Basically keep everything.
Traditional accounting also requires you to be able to calculate some other details such as how much you have invoiced for but have not yet received payment for, stock values and bak balances at the end of your financial year. This is not an exhaustive list and again your accountant will advise on the different records you will need.
How Long Should I keep My Records For?
Records must be kept for a minimum of 5 years from the 31st January HMRC submission deadline for each tax year. So for example a 2014 to 2015 tax return should have been submitted by 31st January 2016 and records for this must be kept until at least the 31st January 2021.
If your records are lost or stolen then you will need to make an estimate and advise HMRC when sending in your return.
Good bookkeeping makes it much easier for you to understand and manage your business. It is also a regulatory requirement that you keep accurate records so if you are unable to do this yourself it makes sense to appoint a bookkeeper on a part or full time basis depending on the amount of paperwork you have. New accounting packages such as Xero and Quickbooks make the whole process much simpler so please call MCC Accountants for some advice on the best bookkeeping methods for your business.