Keeping Business Records When Self-Employed

If you're self-employed or a sole trader, keeping accurate business records isn't optional — it's a legal requirement. You need these records to complete your Self Assessment tax return correctly, and HMRC can ask to see them if they check your return. This guide explains what...

Keeping Business Records When Self-Employed

Why you need to keep records

You must keep records of your business income and expenses if you're a sole trader or partner in a business partnership and need to send a Self Assessment tax return to HMRC.

You don't need to send your records when you submit your tax return, but you need them to:

Work out your profit or loss accurately
Show them to HMRC if they ask to check your tax return

Your records must be accurate, complete and readable. HMRC can charge you a penalty if they're not.

What records you must keep

You need to keep records of:

All sales and income — every payment you receive for goods or services
All business expenses — everything you spend to run your business
Receipts for goods and stock you buy
Bank statements and chequebook stubs
Sales invoices, till rolls and bank slips

If you're the nominated partner in a business partnership, you must also keep records for the partnership.

You'll also need additional records if you:

Are registered for VAT — keep VAT records
Employ people — keep PAYE records
Claimed through the Self-Employment Income Support Scheme — keep records of your grants

Choosing an accounting method

You need to choose an accounting method, which affects when you record income and expenses.

Cash basis accounting is the default method from the 2024 to 2025 tax year onwards. With cash basis, you only record income when you actually receive money, and expenses when you actually pay bills. This means you won't pay Income Tax on money you're still waiting to receive.

For example: You invoice a customer on 15 March 2024 but don't receive payment until 30 April 2024. If you use cash basis and record your income in line with the tax year (6 April to 5 April), you'd record this income on 30 April 2024 in the 2024 to 2025 tax year.

Traditional accounting means you record income and expenses by the date you invoiced or were billed, even if money hasn't changed hands yet.

For example: You invoice a customer on 28 March 2024 but don't receive payment until the next tax year. With traditional accounting, you'd record that invoice in the 2023 to 2024 tax year.

You must opt out if you want to use traditional accounting instead of cash basis, or if you cannot use cash basis accounting.

Additional records for traditional accounting

If you use traditional accounting, you also need to keep records of:

What you're owed but haven't received yet
What you've committed to spend but haven't paid out yet (like unpaid invoices)
The value of stock and work in progress at the end of your accounting period
Your year-end bank balances
How much you've invested in the business during the year
How much money you've taken out for your own use

Accounting periods and tax years

If you prepare accounts for your business, you need to choose the dates you keep records from and to — usually the same dates each year.

It's easier to complete your tax return if these dates match the tax year (6 April to 5 April), because HMRC works out tax based on the tax year. If your accounting period doesn't match, you'll need to allocate profits across two different accounting periods.

If you don't prepare accounts, you must record your income and expenses for each tax year (6 April to 5 April).

How to keep your records

There are no rules about how you keep your records. You can keep them:

On paper
Digitally
As part of software (like book-keeping software)

Choose whatever method works best for you, but make sure your records remain accurate, complete and readable.

You might be able to use a personal or business bank account for your business transactions — check with your bank which type of account you can use.

How long to keep your records

You must keep your business records for at least 5 years after the 31 January submission deadline of the relevant tax year.

For example: If you sent your 2022 to 2023 tax return online by 31 January 2024, you must keep your records until at least the end of January 2029.

If you send your tax return more than 4 years after the deadline, you'll need to keep your records for 15 months after you send it.

These time periods are longer than for employees or those with only personal income. If you send your tax return on or before the deadline, you should keep those personal records for at least 22 months after the end of the tax year. If you send it late, keep records for at least 15 months after you sent the return.

If your records are lost or destroyed

If you lose records or they're destroyed, try to get copies — for example, ask your bank for duplicate statements or suppliers for duplicate invoices.

If you cannot replace all your records, you must do your best to provide figures. When you file your tax return, tell HMRC if you're using:

Estimated figures — your best guess when you cannot provide actual figures and won't be able to confirm them later
Provisional figures — temporary estimated figures while you wait for actual figures (you'll need to submit the actual figures when they become available)

You may have to pay interest and penalties if your figures turn out to be wrong and you haven't paid enough tax.

Other income records to keep

Beyond your business records, you also need to keep records of personal income if you complete a Self Assessment tax return. This includes:

Employment income — P60s, P45s, P11Ds showing expenses and benefits
Rental income — rent received, dates you let your property, allowable expenses, rent books and invoices
Savings and investments — bank statements, dividend vouchers, unit trust vouchers
Pensions — P60s from your pension provider, State Pension details
Overseas income — evidence of foreign earnings, receipts for overseas expenses, proof of tax already paid abroad
Capital gains or losses — records if you sell assets that have gone up in value

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.

Keeping Business Records When Self-Employed