What Business Records Should I Keep If I’m Self-Employed?

Business records that self-employed people must keep for Self Assessment purposes are:

• Sales and business income information
• All business expenses
• Personal income information

Each record needs to be stored for five years following that current tax year. If you fail to do this, you could face a penalty of up to £3,000 from HM Revenue & Customs.

For the self-employed, record-keeping is essential. You are required to log receipts, invoices and other information for a length of time set by HM Revenue & Customs (HMRC).

This is true for sole traders and any partners in a business partnership. Both of which need to keep stock of their personal as well as business income.

So, to help prevent you from becoming overwhelmed and keep you on the right side of the taxman, we’ve provided the ultimate guide to business records.

WHAT BUSINESS RECORDS MUST YOU KEEP?

Part of self-employed record-keeping involves just that: keeping records of the financial state of your organisation.

As part of their basic records, all self-employed taxpayers will need to log:

Sales and income information – This includes your invoices, bank statements and paying-in slips.

All business expenses – If you are claiming business expenses then you will need to securely store all self-employed receipts related to such expenditure, plus any invoices that qualify for expenses. Failure to do so could mean that you risk losing out on tax deductions you’re entitled to.

Records about your personal income – Any money that you put into the business from your own personal funds needs to be logged. Funds that are taken out and spent for your personal use should be recorded as well, usually known as ‘drawings’.

VAT records – If your business has income in excess of £85,000 (the VAT registration threshold as of 2019/20) or above, you’ll be expected to keep a separate summary of VAT on your sales and purchases. You’ll also need to adhere to the guidelines outlined by Making Tax Digital for VAT.

PAYE records – Similarly to VAT, you may be required to log PAYE records. This is only relevant if you employ people. If you do, you’ll need to note what you pay employees, plus the deductions you make. You should also record:

• Employee leave and absences
• Tax code notices
• Expenses or benefits
• Any documents pertaining to a Payroll Giving scheme you may have

If you still use traditional accounting for your self-employed accounts, you’ll need to keep extra information. This will ensure your tax return is entirely up to date.

This includes:

• Money you’re owed but are yet to receive
• Invoices you have received from your supplies but have not paid
• The value of your stock and work in progress at the end of your accounting period
• Your year-end bank balances
• Your personal investment in the business that year
• How much money you’ve taken out of the business for personal use

WHY DO YOU NEED TO KEEP BUSINESS RECORDS?

Keeping business records not only allows you to prepare accurate financial records, but it also enables HMRC to tax you correctly.

Plus, without evidence of your business income, and expenses, HMRC could wrongly tax you – either causing you to pay too much tax or too little (leading to possible penalisation further down the line). Plus, HMRC do have the powers to ask you to show them your business records, including receipts so accurate record-keeping, is essential.

HOW LONG SHOULD YOU KEEP TAX RECORDS?

Often, self-employed taxpayers ask how long to keep business records. Well, if you are a sole-trader you’re required by law to hold records and receipts for at least five years.

For example, if you sent your 2020/21 tax return by 31st January 2022, you must store records – for that year – until January 2027. If you send an incredibly late tax return (more than four years after your deadline) you will be expected to keep your records for HMRC a further 15 months.

WHAT DO YOU DO IF BUSINESS RECORDS ARE LOST OR DESTROYED?

If any of your business records for self-employed work are lost or damaged, you may need to provide estimated figures instead.

However, estimated or provisional figures can harm you in the future. Why? Because HMRC will perceive carelessness as an under-declaration of profit.

WHAT ARE THE PENALTIES FOR INADEQUATE SELF-EMPLOYED RECORD-KEEPING?

The penalties applied for providing inadequate business records or failing to keep records at all can reach up to £3,000 per tax year.

For any self-employed person, such charges could dramatically affect your business. As such, knowing the exact records you should keep is essential.

What’s more, storing them safely so that you’re capable of submitting evidence in the event of an investigation is paramount. So, it really does pay to know how long you need to keep business records.

WHERE WE COME IN

Accounting for the self-employed can be a drain on your productivity and time. At GoSimpleTax, however, our accounting software makes logging income and expenditure effortless.

Any records, documentation or reports are stored on our servers for as long as necessary. This provides a safety net should HMRC ever wish to look deeper.

If you like the sound of reinvigorating your current processes by capturing evidence as you go about your daily business, sign up today. Our team will walk you through our services and demonstrate just how simple tax can be.

Read our relevant articles

• How long must you keep financial records for when you’re self employed?
• How to register, keep records and claim expenses when you’re a self employed gig worker

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.