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Self Employment Business Records

Information in this section explains how to do accounts for self employed workers. Check your responsibilities for keeping business records if you are self-employed.

BASIC ACCOUNTING: You must keep business records and paperwork if you are self-employed.

The list of bookkeeping items incorporates several different record types. It includes business income, personal income, running costs, and any profit made.

You must have the records of income and expenses to show on a tax return if you are self-employed as either:

There are extra responsibilities for the nominated partner in a partnership. As such, the nominee must also keep certain records about the business partnership.

Note: This section explains the rules of accounts and keeping records for self employed. They are different to limited company accounting records.

Accounting Method for Self Employed

As a worker in self-employed status you will need to choose to run one of the accepted accounting methods. You can choose between traditional accounting and the cash basis system.

Traditional Accounting Methods

The accrual basis of accounting method is very popular with many businesses. The date you write invoices or get billed determines when you record the income and expenses.

An Example: You write an invoice for a customer on the 19th of March 2021. You would record that invoice for the 2020 to 2021 tax year. This would still apply even if the business did not receive the money until the next tax year [2018/19].

Cash Basis Accounting System

Many small businesses use cash basis accounting procedures. The system has many advantages for businesses with an annual turnover up to £150,000.

The cash basis method of reporting is different to traditional accounting. With cash basis you would only record income or expenses at the time you actually receive money or you pay a bill. The advantage is not having to pay Income Tax on money not yet received in that accounting period.

An Example: You wrote an invoice on the 19 of March 2021 for a customer. But, the business did not receive the money until the 19th of April 2021. Thus, you would record this income in the 2021 to 2022 tax year.

Business Records You Need to Keep

Once you start self employment business records you need to keep include:

  • Details of all the sales and income.
  • Information on all business expenses.
  • PAYE records (if the business employs people).
  • VAT record keeping (if registered for VAT).
  • Details about your pay and tax records (personal income).

Why Businesses Need to Keep Records

There is a simple reason why businesses need to keep accounting records. It is to avoid sending them in to HMRC every time you submit a tax return. But, by keeping self employed business paperwork you can:

  • Use it to work out profit or loss for the business tax return.
  • Have it available to show HM Revenue and Customs (HMRC) if they ask to see them.

Note: Understanding how to do accounts for self employed is not always straightforward. But, you must ensure your business records get kept up to date and accurate.

Keeping Proof of Business Paperwork

There are several different types of proof that HM Revenue and Customs may need to see, such as:

  • All the company receipts for goods and for stock items.
  • Bank statements and chequebook stubs.
  • Sales invoices, bank slips, and till rolls.

What if you use traditional accounting methods? Besides the standard self employed bookkeeping records, you must keep some other details too. The extra information means your tax return will also include:

  • Money owed to you (but not yet received).
  • The amount you have committed to spend (but not yet paid out).
  • How much money you have taken out of the company for your own use.
  • The value of any stock and any work in progress at the end of the accounting period.
  • The business year end bank balances.
  • The amount you invested in the business during each year.

How Long Do You Have to Keep Business Records UK

Most accountants suggest keeping your paperwork for at least six (6) years. But, HMRC say you must keep your records for at least five (5) years from the 31st of January submission deadline of the relevant tax year.

HM Revenue and Customs may carry out a tax compliance check of your self employment business records. This is to ensure you pay the correct amount of taxation. But, there is no limit for cases of fraud or willful default.

An Example: You send your 2020 to 2021 tax return online before the Self Assessment deadline of the 31st of January 2022. In this case, you must keep the records until at least the end of January 2027.

Sending Very Late Tax Returns

Different rules apply if you send a tax return more than four (4) years after the deadline. In this case, you would need to keep all the records for at least 15 months after you send in a tax return.

If Business Records get Lost, Destroyed, or Stolen

Self Employment business records can get lost or destroyed (even stolen). So what happens if you are unable to replace your paperwork and records?

If it happens, you must do everything you can to provide figures for HMRC. Make sure you inform them when you file each tax return if:

  • You are using ‘estimated figures‘ (your best guess if you cannot give the actual figures to HMRC).
  • You are using ‘provisional figures‘ (temporary estimated figures while you wait for actual figures). You would then need to submit the actual figures as soon as they become available.

Self Employed Bookkeeping Records for Sole Traders and Partnerships in UK