If you are a partner in a partnership or a sole trader (self-employed) then you must keep records of your business income and expenses.
Records must be kept for at least 5 years after the 31 January submission deadline of the relevant tax year.
This is required in order to support your Self-Assessment tax return. These records do not need to be sent to HMRC with your Self-Assessment but you need to keep them so you can prepare your tax return and also so that you can support the figures in your tax return is asked by HMRC.
The business records will need to be summarised into a set of accounts and these may be maintained using “traditional accounting” rules or the “cash basis” may be used.
Under “traditional accounting” income and expenses are recorded based on when the transaction happens. However under the “cash basis” the transaction is only recorded when there is a cash movement.
The cash basis can only be used if income up to £150,000.
The records that are required to be maintained are mainly:
a) Records of all income,
b) Records of all expenses incurred,
c) All payroll records (if relevant i.e. if you employee any staff),
d) All VAT records if you are registered for VAT.
e) Copies of all business bank statements,
Business records are typical made up of such things as: bank statements, chequebook stubs, sales invoices, till rolls, bank slips, receipts for any goods and stock, debtor listings, creditor listings, stock lists and valuations, cash balances, capital asset listings and also records of amounts taken out of the business for personal use.
A separate bank account is not mandatory but we strongly recommend it.
A sole trader does not have to use an accountant at year-end (or during the year) but many do.
Also using accounting software is not mandatory for all sole traders (although this may change in the future) but, depending on size, many businesses find it extremely useful. However, VAT registered business must maintain digital records and file digital VAT Returns.
Declaimer: The above is intended to be only a brief and broad overview of the topic as at the date of writing and is for general information use only. It is in no way intended to be taken as advice or acted upon. We strongly recommend that you obtain appropriate independent professional advice before you take any actions or make any decisions in this area.
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