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What business records should I keep?

6 September 2014 by Crystal HR & Payroll Ltd

This article gives you details of the basic records you should keep.

Having a good record system in place will help you run your business efficiently, save you time, and make it much easier to fill in your Self Assessment tax return.

You must keep accurate business records, if you don’t then you may have to pay a penalty.

You need to make sure that you regularly update your records and store the information securely.

You will need the information from your records to complete a tax return.

You can decide how to keep your records; you might choose a computer software package or prefer to use a paper record book. Whatever you choose, get something in place as soon as you start working for yourself.

To help small businesses with record keeping on the go, HMRC have a list of software suppliers that have produced simple record keeping applications, many are free. To find out more go to:

HM Revenue & Customs: Record Keeping and Simpler Income Tax Applications/Software

Remember as a general rule, you should keep your records for six years.

Types of records

You will need to keep a record of all money coming into and out of your business. This includes payments made by cash, cheque or credit/debit card transactions.

The records you need to keep will depend on the size and type of business and whether you’re using traditional accounting or cash basis or simplified expenses. Cash basis or simplified accounting can be used for 2013-14 onwards. If you choose to use cash basis or simplified expenses to simplify your tax affairs this will affect the records you keep from April 2013.

For traditional accounting

You must keep all invoices or receipts for everything related to your business.
You’ll usually also need to keep records of:

  • your business income
  • your business expenses
  • the difference between them – your business’ profit
  • the value of your business’ assets (including cash you have)
  • what the business owes (known as ‘liabilities’)

You’ll need this at the end of the tax year, so your tax return takes account of money:

  • you’re owed but haven’t been paid yet
  • you’ve committed to spend but haven’t paid out yet (e.g. you’ve received an invoice but haven’t paid it yet)

You must also keep a record of any personal use of equipment because you can only claim for business use.

An example of this would be a decorator paints his mechanic’s house and the mechanic services the painter’s van.

No money changes hands but the cost of materials is claimed against trading income.

If this happens you will need to record, at the time the transaction takes place, details of the goods taken or supplied, and their retail selling price.

You will find lots of useful information on record keeping on the HMRC website.

A document that you may find useful is Keeping records for business – what you need to know (PDF, 335KB)

For cash basis and simplified expenses schemes

You must keep records of:

  • business income received
  • business expenses paid

With cash basis you only count the money you’ve actually received in a tax year.

Any money you’re owed isn’t counted until you receive it.

If you decide to use simplified expenses (simplified expenses are fixed amounts you can claim) for your car, working from home or to claim for private use of business premises, you will also need to record business miles for vehicles, hours you work at home and how many people live on your business premises over the year.

Cash basis isn’t suitable for every business, to find out if is beneficial for you, go to the GOV.UK website search Simpler Income Tax – Cash Basis.

Remember whether you use traditional accounting or cash basis all payments count – payments in cash, by card, cheque, payment in kind or any other method.

Records and accounting periods

You need to organise your records into what is known as accounting periods. Don’t worry this isn’t as complicated as it seems.

An accounting period is the length of time that you will record your business income or turnover and business expenses.

It will normally last for twelve months.

The last day of an accounting period is known as your accounting date, and is the date you will use for your accounts each year.

You can choose any accounting date you like, but it will keep your tax affairs as simple as possible if you use 5 April as this is the last day of the tax year.

We know that people find it difficult to work out the amount of money coming into their business, so HMRC have introduced a new simpler way to help you do this, it’s called cash basis.

Cash basis can be used for the 2013/14 tax year onwards and should make record keeping easier. You only record money when you actually receive it or pay it out of your business. It is optional but not every one can use it.

You can find out more about cash basis and whether it is right for your business on the GOV.UK website
Simpler Income Tax: cash basis – GOV.UK

Your business accounts will be prepared using the turnover or business income (if using cash basis) and the business expenses that you have recorded during your accounting period.

We look at business expenses in the ‘What am I allowed to claim as a business expenses’ section.

My experience

I thought about what kind of record-keeping system I was going to put in place. I chose to keep my records on a computer using a spreadsheet and did this as soon as I started my business.

By doing this I quickly got into the habit of keeping organised, accurate and up-to-date records. It made things much easier to see how my business was going, and whether I was making a profit.

You can decide how to keep your records, you might choose a computer software package or prefer to use a paper record book.

I like the idea of the record keeping on the go, so I’m going to have a look on the website at the simple record keeping apps.

Should HMRC look into your tax affairs and find that you have not taken reasonable care you could be charged a penalty. It really is in your interest to keep good records.

You will need to keep records of all money coming in and going out of your business. This will include cash, cheque and debit/credit card transactions.

For more information about cash basis and a reminder of what records you need to keep wether you are using traditional accounting or simplified accounting (cash basis)

Follow the links below:

Simpler Income Tax: cash basis

That completes this section about what records you should keep when you work for yourself.

Let’s review the key points:

  • Generally you must keep your records for six years.
  • Get a proper record-keeping system in place from the start and update it on a regular basis.
  • Keep a record of all money coming into and out of your business. This includes cash, cheque and credit card transactions.

Courtesy of HM Revenue & Customs

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