Keeping business records for the self-employed

If you’re self-employed you must keep business records such as your accounts, evidence of tax that’s been paid and other records relating to your income and outgoings. You’ll need these to help you complete your tax return or to answer any questions from HM Revenue & Customs (HMRC) about a return you’ve completed.

You’ll need to keep your business records separate from and for longer than your personal records. Most businesses find that it helps to have a separate business bank account.

Basic records you must keep

You must keep records so that you can fill in your tax return fully and accurately.

Your basic business records must include:

  • a record of all your sales and takings
  • a record of all your purchases and expenses

The more detailed records you keep, the easier it will be to answer any questions that HMRC have about your tax return.

Working in the construction industry

If you work in the construction industry you’ll need to keep records of all your income and expenditure – whether you’re paid ‘gross’ or with deductions towards tax. If deductions are made you’ll need to keep your payment statements and – where higher rate deductions are made – the verification number. You’ll need these for your Self Assessment tax return to reclaim any overpayment of tax.  A more detailed guide regarding record keeping for the CIS is available.

Capital allowances

It’s helpful to keep records of purchases and sales of assets that you use in the business, such as tools, computers and fittings, separate from records relating to day to day running costs and sales. This is because you deal with these differently in your tax return and may be able to claim capital allowances for them. Rather than claiming the whole cost at the time you buy, you reclaim the cost over time. You’ll need to keep detailed records to support your claim.

Other records you may need to keep

All businesses are different and there are many specific types of detailed records that you may need to keep. Some examples of records you may need to keep include:

  • cash book
  • petty cash book
  • sales and purchase ledger
  • wages book
  • invoices and receipts issued and received
  • electronic records of sales or till rolls
  • details of items not rung through the till
  • details of incidental or miscellaneous income – for example rent for accommodation owned by the business
  • hire purchase and leasing details
  • an inventory of stock on hand at the end of your accounting year
  • bank and building society statements, pass books, cheque stubs and paying-in slips which include details of business transactions
  • details of any money taken out of the business for your own or your family’s personal use
  • details of any private money brought into or taken from the business

All this information will be useful for completing your Self Assessment tax return and answering any questions that HMRC may have about it.

Records related to both business and personal use

It’s important that you keep your business and personal records separate, so that you can work out exactly what relates to your business.

Sales or income

Mistakes are often made when recording sales if:

  • you take stock for personal or family consumption
  • you supply goods or services to someone else in return for goods or services – barter transactions

Even if you don’t record these transactions through a till you still need to keep a record of them. You should note down the goods or services taken or supplied and their normal retail price, and your business profits must be worked out using this value.

Expenditure or outgoings

If you use assets for both business and personal purposes, for example you live in a flat above shop premises – you must keep enough records so that you can work out which expenditure relates to business use and which is for private use.

If you use a vehicle for both business and private purposes, it’s usually enough to keep a record of business and private mileage and to split the vehicle running costs in the same proportions.

If you’ve got more than one business

If you’ve got more than one business or self-employment then you’ll need to keep separate records for each and complete the self-employment supplementary pages – SA103S if your turnover was below £70,000 or SA103F if the turnover was £70,000 or more – for each one.

How long must you keep your records?

You must normally keep your business records for five more years after the normal filing deadline of 31 January. This date applies even if you’ve sent in a paper tax return.

For example, for a 2013-14 tax return filed on or before 31 January 2016, you must keep your records until 31 January 2020.

But if HMRC sent you – or you sent back – your tax return very late, you may need to keep your records for longer. You need to keep them until the later of:

  • five years after the normal filing deadline
  • fifteen months after the date you sent your tax return

If a check has been started

You may also need to keep your records for longer if a check into your tax return has been started – in this case you’ll need to keep your records until HMRC writes and tells you they’ve finished the check.

If your records are lost or destroyed

If your business records are lost or destroyed and you can’t replace them you must let HMRC know what’s happened and you’ll have to try to recreate them.

Once you’ve gathered replacement information use this to complete your tax return. You must tell HMRC whether any figures are:

  • estimated – you want HMRC to accept these as final figures
  • provisional – you are using these until you can confirm the actual figures (you must tell HMRC when you will be supplying actual figures)

Use the ‘Additional Information’ section to say how you’ve arrived at your figures and why you can’t use actual figures.

If you make adjustments at a later date and you’ve underpaid tax there may be interest and penalties to pay.