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Record Keeping

This page covers information on how to keep records; preparing accounts; appeals; simple tax accounts.

Last updated: 31 March 2022

HMRC has produced a guide which includes details on the bookkeeping requirements for the purposes of Self Assessment.   

The law states that you must keep all records regarding your self-employment for five years after the filing date. For example, you must keep your 2017/2018 records for five years from 31 January 2019. Keep all receipts in a safe place, filed in a logical order. (Digital copies are fine provided any scans are legible). 

Also try to pay for as many things as possible by cheque or credit card — this serves as a useful double-check for business receipts and expenses, and acts as a receipt in case you lose the original. 

Incidentally, a separate bank account is also a very useful aid to your accounting. If you want to be more efficient in recording expenses, then try using a multi-column book. Use the different columns to detail separate expenses, for example a column for petrol, a column for clothes, and so on. You can easily add up the columns to see how much you have spent on each. Better still, use a computer package. 

Although any expenses come under the watchful eye of the Inspector of Taxes, certain ones are often targeted. Motor expenses is a favourite. If you use your car for both business and personal reasons, it is essential to have a car mileage logbook where you record details of the journeys. Then if you want to claim part of your car expenses against your tax, it will be easy to work out the proportion of business to private mileage.

HMRC has indicated that car expenses may be scrutinised under Self Assessment so it has become imperative that a record of business and private journeys is maintained. You will need to keep at least all the above records even if you pay an accountant to actually prepare and submit your accounts for tax purposes. 

Your records must be accurate, because you are 100% responsible for presenting correct accounts to the tax authorities, no matter who prepares them for you. 

Most people do not realise that. They pay the accountant, thinking that he or she will carry the can for them if the tax authorities discovers something odd in the figures. This is not so. Your accountant can be of great help if you do get into trouble, but you are actually the one who will get it in the pocket! 

In addition to making preparation of your tax return and dealing with queries easier, keeping proper records means you are not exposed to the penalty for not doing so, which can be as much as £3,000. 

Accounts preparation work for tax purposes

All self-employed individuals must complete the self-employment pages in the Self Assessment tax return. 

Under Self Assessment, it is not necessary to send in copies of your actual accounts to HMRC. However, you do have to disclose your income and expenses under the categories printed on the return form (for example ‘premises costs’ would include rent, business rates, water rates, light, heat, power, insurance for premises and any other costs that are designated for business use).

There is an adjacent column for entering any disallowable element of the expense figure included in the main column, such as for private usage of a vehicle. 

Simple tax accounts

HMRC has simplified the accounting requirements for businesses, either full or part-time, where total business turnover before expenses is under the VAT registration threshold. All you need to return is:

  • Your gross business turnover.
  • Your total allowable deductions (business purchases and expenses and capital allowances).
  • Your net profit or loss.

It is essential to keep a detailed list of expenses and purchases for business purposes, in case of a query from the Tax Inspector. Beware! HMRC seems to be targeting small businesses.

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