Let’s have a little chat about self employed taxes and record keeping in the UK. As a self employed person, you must keep records to back up the information you put on your self assessment tax returns. You can keep paper records, electronic records (e.g. in a spreadsheet) or you can use software. So what sort of information do you need to keep track of?

You can watch the full video here:

Basic TAX RECORD KEEPING when you’re self employed
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Self Assessment record keeping

On your self assessment tax return you generally only need to provide two figures. Your turnover and your business expenses. The system will then automatically calculate your profit and tax liability. However if you get audited you MUST have a good record of every transaction relating to your business. That means a detailed log of all income and receipts to back up all business expenses.

What are HMRC’s requirements for record keeping?

According to HMRC there are no specific requirements for how you keep your tax information. They can be on paper, on a spreadsheet or in accounting software. The main thing is that you have clear records so you can find what you need if you’re ever audited. HMRC detail their specific requirements for self employed business owners here.

How long do you need to keep accounting records for your self employed taxes?

You must keep your accounting records for your self employed taxes for at least 5 years after the 31st January tax deadline. To be on the safe side I generally keep paper records for 7 years before shredding them. I generally keep electronic records indefinitely. I have heard of situations, for example in the event of actual tax fraud, where HMRC might go back further than 7 years. As far as I’m aware there’s no limit to how far HMRC can go back if you’ve actually broken the law.

Why do you need to keep records when you’re self employed?

Remember, HMRC generally don’t want to see your shoebox full of receipts! They don’t even want to see your accounts. The primary reason to maintain good records is so that you can accurately work out your business turnover and expenses. From this HMRC will calculate your net profit (turnover minus expenses). Your tax is assessed based on your business profit.

The other reason you need clear records is for if you’re ever audited. Audits are random and could happen at any time for any tax year. As such it’s important that you’ve got information to hand to answer HMRC’s questions if they ever get in touch. There’s more information about what’s involved in a HMRC audit here.

What about Making Tax Digital?

At the moment we only have to deal with Making Tax Digital for VAT. There’s no requirements yet to keep real-time digital records for income tax. Having said that, HMRC are trying to bring this in. It’s known as Making Tax Digital for Income Tax Self Assessment (MTD ITSA). It’s an absolute nightmare and you can find out more information here.

The importance of good data backups

If you keep your records electronically, whether they’re on spreadsheets or in accounting software, it’s absolutely essential that you have this data backed up. I use Acronis for online data backups and find it works great.

Acronis for online data backups
Acronis for online data backups (affiliate link)

I’ll be making a more detailed video about Acronis in due course so watch this space!

Income log

Normally when logging business income I would keep track of the following information:

  • Customer name
  • Address
  • Contact details (e-mail & phone)
  • Date invoiced
  • Date paid
  • Payment amount
  • Payment method
  • Brief description of work

Remember if you’re using Cash Basis you need to base your turnover on income that’s actually been received, not income invoiced.

Obviously there’s additional information you might want to log about your customers. For instance, you might want to keep a record of jobs you’ve done for them along with photographs. Some businesses log dates of birth so you can send them a birthday card. Garages might log MOT / service renewal dates. Make sure whatever information you’re logging is within GDPR guidelines.

Expenses log

Again, HMRC don’t issue any specific requirements for logging expenses, but I keep track of the following and it works pretty well:

  • Receipt Id (cross reference to physical receipt)
  • Receipt Id (cross reference to an electronic receipt)
  • Purchase date
  • Payment amount
  • Supplier name
  • Item
  • Brief description
  • Category

You can read more about HMRC’s requirements regarding business expenses here. This includes information about what you can and can’t claim for.

Mileage log

I would suggest you keep a log of all business related travel, especially if you’re using the simplified expenses method for claiming mileage. I log the following:

  • Date
  • Start location
  • End location
  • Purpose of trip
  • Miles travelled
  • Amount claimed (generally 45p x total miles)

Using home as an office

If you use your home as an office you might want to consider keeping a record of the following:

  • Gas / electric bills
  • Water bills
  • Council tax
  • Home insurance
  • Telephone bills
  • Mobile phone bills
  • Rent
  • Mortgage interest

You then need to decide on a fair proportion to claim along with appropriate justification in case HMRC ask about this. HMRC give more detail about this here.

How do I download the income and expense tracking spreadsheet?

As a special thank you to site members, you can download my own income and expense tracking spreadsheet from here. By joining as a site member you can also get access to all sorts of other useful spreadsheet templates for your small business. This includes invoice templates, quote templates and much more.

Income and expense tracking spreadsheet

Why is reconciliation important?

Your final record keeping task is reconciliation. This is an essential step to double check that all the information recorded in your various spreadsheets or accounting software is correct. Reconciliation involves cross-referencing your own records to your bank statements. You literally go through everything line by line. If it’s 1p out it might as well be £1,000 out – you’ve made a mistake somewhere and you need to rectify this. Here’s a video all about reconciliation:

What is RECONCILIATION and why is it important?
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Member Downloads

If you’re a website member you can download a really simple income and expense tracking spreadsheet from below. This allows you to record income, expenses, mileage and using your home as an office. It’s what I use and it’s survived HMRC audit so I’m assuming it’s OK (but don’t hold me to that!).

LATEST UPDATES – Jan 2023: Figures updated for the 2022/23 tax year. I’ve also added a new ‘recurring’ column for expenses. This is useful so you can filter for regular outgoings. Especially useful when you need to update them all, for example if you’re sent a new credit card! Downloads in .ods Open Document format for the likes of LibreOffice or .xlsx for Excel.

In this newer version of the spreadsheet we’re no longer separating Capex and Opex. The allowances for in-year expenses are so high now that separating it serves little purpose. Obviously feel free to continue to break down Capex and Opex if you like – check with your accountant whether it’s necessary. I don’t bother now although it could be useful if you’re keeping accruals accounts (as opposed to Cash Basis).

We’re making the assumption that you have a very simple business model, use the cash basis and don’t charge VAT. It’s pretty much the format I provide to my accountant at the end of each tax year and he seems happy. Please get your accountant to verify they’re happy with the information you’re logging for them. Please also sanity check the formulas – I think they’re all correct. If you have any problems with this or notice any errors just shout.

If you spot any errors in this article please get in touch. Don’t forget to subscribe on YouTube and remember you can get access to extra useful content by becoming a site member. Please also join our mailing list so we can keep in touch with you outside the world of YouTube. We are 100% privacy focused and you can unsubscribe at any time.

Thank you for supporting this independent website and best of luck on your small business journey!

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Last Updated on 5 July 2023 by Andy Mac