Keeping Financial Records: General Advice and Tips

If you run your own business, an important thing you need to do is keep records. The reason to keep records is so that you have evidence of your business activities. This is mainly for money coming into your business through sales and money that your business has paid out through expenses.

What happens if I don’t keep financial records?

HM Revenue and Customs (HMRC) can look into your business at any time to make sure that the information you are entering on your tax return is accurate. If you are unable to prove the figures you use then HMRC could impose a penalty if they believe you are underpaying your tax.

How long must I keep records for?

You need to keep your business records for at least five years after the 31 January filing deadline for the relevant tax year. For example, for a 2022/23 tax return due by 31 January 2024, you must keep records until at least 31 January 2029. In practice, this means keeping records for roughly six years from the end of each tax year.​

Different methods of record keeping

There are three current methods for record keeping. Traditional accounting (also known as the accruals basis) is the usual method for more complete accounts. From the 2013 to 2014 tax year onwards, two alternative approaches for the self‑employed were introduced: cash basis accounting and simplified expenses flat rates for certain costs. For this blog we will look at the traditional accounting and the other two methods will be covered in future blogs.​

What you need to keep records of for traditional accounting

The records you need to keep include invoices and receipts for all of the income and expenses of your business. In addition to the above you need to keep records of:

• Any assets your business owns, such as vehicles and equipment
• Business bank accounts and statements
• Amounts owed to your business by customers (debtors)
• Amounts your business owes to others, such as suppliers and lenders (liabilities)

These are required at the end of your tax year so your return can take into account any money you are owed but have not been paid yet, and any costs you are committed to pay but have not yet paid (the accruals basis).

If you are filling out a personal income tax return you will also have to keep records of any other personal income you have, such as employee P60s or interest certificates for savings accounts.

Records to keep in terms of business assets

The way you need to keep records for business assets depends on whether the business owns the asset or is renting (or leasing) the asset.

• If your business leases the asset then you should keep the leasing agreement along with a record of all lease payments you make.
• If the asset is owned by the business then you need to keep records of the purchase price, the date of purchase, and the value received on any assets sold or disposed of. If the asset is a vehicle such as a car or van you should also keep a record of its CO₂ emissions, and keep notes of any private use so you can correctly restrict capital allowances and running costs.

If you claim capital allowances, you need to record how much you claim each year and the remaining balance in each capital allowance pool.

Working from home

If you work from home you need to keep records that support the costs you claim for using your home for business. This can include:

• Evidence that you are using HMRC’s simplified expenses flat‑rate method for working from home if you choose that route.
• Copies of bills such as telephone, broadband, electricity and gas
• A reasonable calculation of the business portion of those costs (for example, based on rooms and hours used), or;
• Evidence that you are using HMRC’s simplified expenses flat‑rate method for working from home if you choose that route.

If you would like any advice or assistance on the above, or if you would like to take advantage of our bookkeeping services, please do not hesitate to contact us.