1. Overview

You must keep records of your business income and expenses for your tax return if you’re self-employed as a:

  • sole trader
  • partner in a business partnership

You’ll also need to keep records of your personal income.

If you’re the nominated partner in a partnership, you must also keep records for the partnership.

There are different rules on keeping records for limited companies.

Accounting methods

You’ll need to choose an accounting method.

Traditional accounting

Many businesses use traditional accounting where you record income and expenses by the date you invoiced or were billed.

Example You invoiced a customer on 28 March 2014. You record that invoice for the 2013 to 2014 tax year - even if you didn’t receive the money until the next tax year.

Cash basis accounting

Most small businesses with an income of £81,000 or less can use cash basis reporting.

With this method, you only record income or expenses when you receive money or pay a bill. This means you won’t need to pay Income Tax on money you haven’t yet received in your accounting period.

ExampleYou invoiced someone on 15 March 2014 but didn’t receive the money until 30 April 2014. Record this income for the 2014 to 2015 tax year.