What
You now have a number of legal obligations to keep good records of your business incomes and expenditures, in order to complete your self-assessment and tax returns.
You’ll also need to keep records of your personal income.
Why
You must keep records of your business income and expenses for your tax return if you’re self-employed.
You’ll need these records to help you calculate your profit and loss for your tax return, and HMRC can ask to look at your records too.
HMRC may charge a penalty of up to £3,000 per tax year for a failure to keep records or for keeping inadequate records.
Having a good system for keeping track of your business records, communications and contracts will be essential, as you need to keep your records for five years following the tax year in which your tax return is made.
You’ll need to ensure you have backups in place too, should your records be lost in some way.
Important to know
Not all purchases are allowable as a business expense - make sure you understand what is eligible.
You’re not legally obliged to have a business bank account if you’re a sole-trader, however it can make record-keeping much easier if your personal and business finances are managed separately.
There are different rules on keeping records for limited companies. Ensure you’re aware of these.
How
1/ Read up on what records you need to keep, so you’re clear on what you should be keeping.
At the very least, you’ll need to be keeping track of:
- Any income from self-employment, i.e. what you charge your client, and what they pay you
- Any purchases or expenditure of your business, i.e. software, travel costs - along with invoices or receipts
- Any purchases or sales of assets, such as equipment used in your business
- Any amounts taken out of the business bank accounts, for your own personal use
- Any amounts paid into your business, from your own funds, i.e. buying items with your own personal card
2/ Find an approach to keeping your records which keeps an adequate amount of information, i.e. a spreadsheet listing all of your purchases or sales, along with suitable storage of your receipts and invoices.
Use digital tools where possible, so you’re not having to keep track of bits of paper - by 2026/2027, all of your record keeping will need to be digital, so it makes sense to start using compliant digital tools now.
Many accounting tools such as FreeAgent or Crunch have document and record storage which makes this process easier.
3/ Keep on top of your record-keeping - try and keep your records updated at the end of every month, so it does not become overwhelming, and so that you’re not at risk of losing any paperwork.
4/ Consider opening a business bank account, to keep your personal and business finances seperate, to allow for easier record keeping.
5/ If you’re working with an accountant, ask them for advice on the best approach to record keeping. They will be able to ensure you’re compliant with your obligations.
6/ Make sure you have backups of your records, using backup software or remote copies.
