22 Aug 2023

Which business records should you be keeping if you’re self employed?

As someone that’s self-employed, the onus is on you to keep on top of the documentation needed to calculate tax rates and complete your tax return. For those who are newly self-employed, or have never been employed before, it may not be clear what records need to be kept and how.

At Monahans, this is something that we get asked about frequently, so we want to give a brief overview of the requirements, available support and share our record-keeping tips.

Which records need to be kept?

When someone is self-employed as a sole trader or is a partner in a business partnership, they must keep records of their business income and expenses for their tax return.

In line with GOV.UK guidance, the records required include:

Types of proof include:

  • all receipts for goods and stock.
  • bank statements, chequebook stubs.
  • sales invoices, till rolls and bank slips.

Those who are using traditional accounting will also need to keep further records so that their tax return includes:

  • what they are owed but have not yet received.
  • what they have committed to spend but have not yet paid out, for example an invoice which hasn’t yet been paid.
  • the value of stock and work in progress at the end of the accounting period.
  • their year-end bank balances.
  • how much they’ve invested in the business in the year.
  • how much money they’ve taken out for their own use.

Why is it important to keep regular records?
Whilst these records won’t be included when submitting a tax return, they will need to be referred to when calculating the profit or loss for the tax return, and to be shown to HM Revenue and Customs (HMRC) if asked. For those who are looking to seek year-end accounting support, it is also hugely beneficial to collect records and proof throughout the year, to make the final process smoother and quicker.

Ensuring that records are up to date and accurate has always been crucial, but in an effort to crack down on the fraudulent claiming of grants, HMRC is currently ramping up its investigations. It’s therefore more important than ever to ensure that everything is as it should be.

Investigations can be expensive and intrusive, so at Monahans we have chosen to offer a tax investigation subscription service, to help to shield businesses during an HMRC Tax Investigation. Find out more about our cost-saving service here.

Best practice for self-employed record-keeping

Seek advice at the earliest stage
Self-employed clients sometimes postpone appointing an accountant simply because it is viewed as an additional expense, on top of those already associated with setting up a business. By seeking support late, these clients may be unaware of the need to record vital information such as the money invested in the early stages of a business. There are also those who approach an accountant after the year-end, to prepare accounts retrospectively, but have not kept a stock count or a work in progress calculation at year-end – a crucial step.

If clients can nail their record keeping from day one, it means that they won’t have to spend valuable time trying to untangle previous activity and back-date transactions, which is a far more time-intensive process.

Harness technology
Keeping records doesn’t need to be complicated or time-consuming. There is a wealth of technology and applications available to make the process as easy as clicking a button. You can find our round-up of some of the best-rated options here.

At Monahans our digital accounting solutions team can offer advice when a client is first selecting the software, as opposed to making a decision through trial and error. For example, signposting to software that is already MTD compliant. Ensuring that information is being recorded in the correct format from the get-go, saves time that might otherwise be spent transferring manual records onto digital software or from one system to another.

Many of these software packages also eliminate the need for hard copy records as everything is stored on the cloud, this means they are protected from potential loss or damage, completely portable and easily transferred.

Whilst seeking professional advice early in the process might seem like an extra cost, in many cases it can result in cost savings and alleviate some of the stress and pressure that can come with self-employment.

If you need support, speak to our team today, who would be more than happy to talk you through your options and ensure that the business is working for you, rather than the other way around.

Becky Young