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When you become self employed, it is important to keep accurate, up-to-date business records. There are many reasons for this, including being able to provide records for HMRC if you become the subject of an investigation. Failure to maintain accurate and timely business records could also result in a penalty charge from HMRC.

Reasons for keeping records

In addition to helping you remain compliant, a set of business records will ensure that you pay the right amount of tax during a year. If your records are inaccurate and maintained, you are likely to pay more tax than you
actually owe. Completion of your tax return is made much easier when you have all the required figures to hand. Rather than having to enter estimates, which could lead to paying more tax, you can enter actual figures on your tax return.

As you have up-to-date records, you will know how much tax you are due to pay. This makes it more likely that you will pay the correct amount on time. Accurate figures will also help you to develop your business, as you are always aware of your cash flow.

If you are likely to apply for finance during the year, you will be required to demonstrate that you keep your business records updated. You may also save on accountancy fees if you have carefully prepared business records, as your accountant will spend less time sorting out the paperwork. If you are claiming any tax reliefs, allowances or expenses, you will be expected to provide documentation to support your claim.

What type of records should I keep?

You will be required to keep records for each year that you are self employed, including details of any employment or other income you have during that year. Although the type of records you keep may depend on your company type, you will generally need to retain all details of expenses, invoices, receipts, and any other evidence of income and expenditure. If you have received any benefits or bank interest, you will require documentation.

It is possible to keep business records using a computer, but you will still need to retain the original documents. If you have paid any tax during the year, you will need evidence of how much has been paid and who to.

If you are in doubt about which documents need to be retained, consult a professional for advice.

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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