It’s that time of year again; festive demands are crowding in, just as HMRC are sending out messages of their own. And we don’t mean Christmas cards…
Are you self–employed? Perhaps you’re a contractor, a small business owner, a freelancer or sole trader? If so, then you’re probably super busy with your day to day work. At Mazuma, we provide hassle-free online accountancy services so that you can be free to focus on what you do best. Just contact our experts to see how we can help you – or check out the answers to these FAQs for a simple guide to what records a sole trader needs to keep.
Why do I need to keep records?
When it’s time to work out profit or loss for your tax return, you’ll need to do this by consulting your records. Although you don’t have to send them in with the tax return as a matter of course, HMRC may ask to see the records at a later date.
What proof do I need?
You’ll need to have evidence of money that you’re owed, but are yet to receive, money that you’ve committed but have not yet spent, the values of your goods in stock, your end of year bank balances, the amount you’ve invested in the year and the amount taken for your own use.
As proof, you could use receipts for your goods and stock, bank statements and cheque book stubs, invoices and till rolls.
What annual documents do I need?
You need to keep paperwork in order, not just for your business management, but also so that you have an audit trail for HMRC. Each year, you need a balance sheet and profit and loss account.
What’s the 5 year rule?
Sole traders need to keep their records in order and this means that by law you need 5 years’ worth of documents from the latest date of submitting your tax return.
What about my bank accounts?
You need to keep your personal and business finances separate. You can do this by keeping careful records of your personal and business income and outgoings. You may decide to keep records in a cash book that shows a summary of your bank account entries, receipts, payments and drawings as well as a petty cash book. It may be easiest to maintain separate bank accounts for your personal and business funds.
What’s petty cash?
Small businesses can keep a small amount of money to hand to pay small expenses. The amount will vary according to the company. You can control petty cash with a voucher system and record the expenses in a ledger each time the petty cash is topped up.
Do I need to do a stocktake?
Yes – if your business has stock or work in progress, you’ll need to make a count of it and keep a record for tax purposes.
What about my employees?
These records are important: you’ll need to record any payments you make to employees. This includes expenses and benefits as well as wages.