What records to keep and how to keep them
Sunday, January 17, 2021
For your own sanity and knowing how much you’re earning as a sole trader or freelancer, it’s always a good idea to keep accurate and up to date records. More than that, HMRC require you to keep them, so you can then rely on those records to complete your tax return.
But where do I start?!
What you declare to HMRC is split into 3 parts:
You need to raise a bill or an invoice to your customer which gives details of what you have sold to them (i.e. goods or services). For example, as an eBay trader, it would briefly describe something you’ve sold. As a freelance writer, describe how many page or words you’ve charged for, or your time spent per hour. As an Uber or taxi driver, details of pick up, drop off and number of miles travelled.
It will all depend on exactly what you are providing as a sole trader. Few things that all sole traders must include in their bill or invoice:
There are plenty of free invoice templates available online, or you can create your own as a Word or Excel template file and save the details each time you raise a bill.
Make sure you keep a track of all the bill or invoices you’ve raised each year.
How you keep a record of your costs really depends on the volume to keep track of. A couple of easy ways to record your expenses:
In either case, keeping to an organised process will make your life a lot easier when you come to calculate your profit. Also, if you have spent something for your business, it will help to reduce your profits, which will lead to potentially paying less tax.
Recording equipment purchases
If your business requires you to purchase equipment, such as machinery, office furniture, a computer or special tools to carry out your work, you can include them with your calculations to work out your business profits.
You must keep details of your sole trader records for at least 6 years, so it is vital to keep good records from the beginning.
Sounds confusing? Don’t fall foul of HMRC legislation!
If you need to register as self-employed with HMRC, you must inform HMRC, register for and complete a self-assessment tax return. If not already registered to file one, you must do so immediately.