Types of records you need to keep
You will need to keep a record of all money coming into and out of your business. This includes payments made by cash, cheque or credit/debit card transactions.
The records you need to keep will depend on the size and type of business and whether you’re using traditional accounting or cash basis or simplified expenses. Cash basis or simplified accounting can be used for 2013-14 onwards. If you choose to use cash basis or simplified expenses to simplify your tax affairs this will affect the records you keep from April 2013. You must keep all invoices or receipts for everything related to your business. You’ll usually also need to keep records of:
- Your business income
- Your business expenses
- The difference between them – your business’ profit
- The value of your business’ assets (including cash you have)
- What the business owes (known as ‘liabilities’)
You’ll need this at the end of the tax year, so that your tax return takes account of the money:
- you’re owed but haven’t been paid yet
- you’ve committed to spend but haven’t paid out yet (e.g. you’ve received an invoice but haven’t paid it yet)
You must also keep a record of any personal use of equipment because you can only claim for business use. For cash basis and simplified expenses schemes
You must keep records of:
- business income received
- business expenses paid
With cash basis you only count the money you’ve actually received in a tax year. Any money you’re owed isn’t counted until you receive it. If you decide to use simplified expenses (simplified expenses are fixed amounts you can claim) for your car, working from home or to claim for private use of business premises, you will also need to record business miles for vehicles, hours you work at home and how many people live on your business premises over the year. Remember whether you use traditional accounting or cash basis all payments count – payments in cash, by card, cheque, payment in kind or any other method.
The Government wants to make it easier for the smallest businesses to calculate their taxable income, whether self-employed sole traders or those in partnership with other individuals, as well as providing them with more certainty over their tax affairs.
The cash basis allows businesses that do not need or want to prepare accruals accounts for business purposes. Small businesses using the alternative cash basis will be taxed on their actual receipts less payments of allowable expenses made in the period, rather than being asked to spend their time doing accounting adjustments and other calculations designed for larger or more complex businesses.
If businesses elect into the cash basis and sustain losses, these can only be carried forward to set against the profits of future years but not carried back or set off ‘sideways’ against other sources of income