It’s time for everyone’s favourite type of new year: the tax year.With the guilt of dropping January’s resolutions long behind us, a new tax year gives the self-employed a chance to set out some achievable goals for 2017 - such as organising their invoices.But before you can really start organising something, it might be worth checking what needs to be organised in the first place.
What records do I need to keep?
If you’re self-employed, call yourself a freelancer, sole trader, or are even in a business partnership, gov.uk says you will need records of:
- all sales and income
- all business expenses
- VAT records if you’re registered for VAT
- PAYE records if you employ people
- records about your personal income
What does that even mean?
This is tricky, as laws surrounding precisely what documents you need are hazy at best.The 2006 companies act, for instance, simply states that ‘every company must keep adequate accounting records.’ Helpfully, they don’t tell you what those records are, just what they need to demonstrate. And what they need to demonstrate is pretty similar to gov.uk’s advice. Though it also includes some further points relating to stock taking.Now if you charge VAT, HMRC does offer some concrete guidance regarding records to keep.For self-employed, gov.uk recommends that you keep these:
- all receipts for goods and stock
- bank statements
- chequebook stubs
- sales invoices
- till rolls
- bank slips
But, crucially, none of these are required by law.You are not legally required to keep till rolls, for instance, or receipts, but HMRC do consider these to be key records.You won’t actually need to send any of these documents with your tax return. But HMRC may ask for them, at any time over the next five years. And HMRC can impose a £3,000 fine if you have ‘deliberately destroyed your records'. This language may scream ‘tax evasion,’ but the penalty can be applied if you simply destroyed records you didn’t think you needed.
If in doubt, keep it. However, you can keep it digitally.
You can keep digital records
“There are no rules on how you must keep records,” says gov.uk, “you can keep them on paper, digitally or as part of a software program.” They just have to be “accurate, complete and readable.”So scans of receipts are fine, as long they are legible. Which is a space saver.If you do go digital, however, make sure to keep multiple backups of your records. If you lose them, you’re to blame.
So… what’s this ‘making tax digital’ thing?
That’s a little different to digital record keeping.The idea is to have a centralised, digital tax account - sort of like accessing a bank account online - where relevant information is updated by HMRC in “as close to real time as possible.” Businesses using the service would be expected to update their digital tax information quarterly.You will be required to use this service, according to gov.uk, from:
- April 2018 - if you’re self-employed and your annual turnover is in excess of the VAT threshold of £85,000.
- April 2019 - if you’re self-employed and your turnover is below the VAT threshold.
- April 2019 - if you are registered for, and pay, VAT
- April 2020 - if you pay Corporation Tax (CT)
If you earn under £10,000 - or are employed, but earn a secondary income of less than £10,000 through self-employment - you won’t be forced to use the digital service.