January is here – and you have until 31st to file your self assessment and pay your tax bill. If you’re new to self employment or in the middle of your first year, here’s a handy guide to keeping yourself and your business records compliant. If you haven’t already, we highly recommend selecting a digital accountancy platform, such as Xero, to make this whole process much easier.
What business records you need to keep
This is the official bit: “You must keep records of your business income and expenses to complete your Self Assessment tax return. You also need to keep records of your personal income and, if you’re the nominated partner, you must keep records for the partnership as well. Different rules apply if your business is a limited company”. (source; Gov website, “Business records if you’re self employed”)
When you start tracking your monthly income and outgoing business costs, you should decide which period your accounts cover. Ideally, these will be the same dates each year.
How to choose your accounting period
Most business owners find it easier to match their accounting dates to the UK tax year (6 April to 5 April), because HMRC calculates tax based on that full period. If your accounts don’t align with the tax year, you may need to split your profits across two tax periods. If you don’t prepare a set of formal accounts, you’ll simply need to record all income and expenses for each tax year.
Choosing an accounting method
You must also choose an accounting method. From the 2024 – 2025 tax year, cash basis accounting is the default. With cash basis, you only need to record money when it’s actually received or paid, avoiding your paying tax on income you haven’t yet received. If you want to use traditional accounting, where transactions are recorded when invoiced or billed, you must opt out of cash basis. Here’s an example, taken from the Government article used to support this blog.
You record your income and expenses in line with the tax year (6 April to 5 April). You invoiced someone on 15 March 2024 but did not receive the money until 30 April 2024. Record this income as received on 30 April 2024 in the 2024 to 2025 tax year.
What business records should be kept?
You need to keep clear records of all your business sales and income, expenses, and any VAT or PAYE records if they apply to you, plus details of your personal income and any grants you’ve claimed (for example through the Self-Employment Income Support Scheme). You don’t need to send these business records with your tax return, but you must have them to hand so that you can work out your profit or loss for the year, and show HMRC if they ask. The records should be accurate and well-organised so you’re able to easily identify individual business transactions, and you can use either a business or personal bank account (as long as it’s clear which transactions relate to your business).
What documents are needed?
As well as keeping records of income and outgoing, you must also keep proof documents such as receipts, bank statements, invoices, and till rolls. There are plenty of software platforms, such as Xero, and tools that will help you to keep these records handy – most equipped with the ability to take and upload a photograph of a physical receipt or till roll for safe-keeping. For this, we recommend HubDoc, a free add-on for Xero users.
Feeling overwhelmed?
Don’t worry, we understand. Working in the business and on the business are both a full time job. Outsourcing this to a bookkeeper or virtual assistant can reduce the complexities of record keeping and save you time when it comes to completing your self assessment. At Timewise VA, we offer a range of services to make running your business even easier. Book a call to find out how outsourcing could make managing your business finances a doddle.