I’m just about to leave my job and become self-employed. What records should I start keeping now to make filing my first tax return simpler?
Assuming your self-employed income will be more than £1,000, the first thing you should do is register with HMRC. You can do this online at Gov.uk/log-infile-self-assessment-tax-return/ register-if-youre-self-employed.
It is important that all business income is recorded, so records should be kept of all sales, including cash and internet sales, as well as purchases and expenses for everything in connection with your business, including such things as professional fees, finance costs, telephone and internet costs. You should keep copies of invoices, receipts and bank statements for all of the above.
If you have business premises, also keep records of the cost of running the business premises, such as rent and utilities. If you are working from home, then an allowance is available based on the number of hours worked from home, so you should keep accurate records of the hours you work from home.
If you use a car or van for your business, then you should keep a detailed mileage log to identify business mileage, together with details of your vehicle and such costs as insurance and road tax.
Finally, if your turnover exceeds £85,000, you need to register for Value Added Tax (VAT).
HMRC is encouraging businesses to keep records digitally, and this may become compulsory in future. Cloud software solutions such as Xero and QuickBooks have a range of ‘add-ons’, which are tailored to different sectors and provide efficient ways to keep records.
Elaine Skelton is an associate at BHP Chartered Accountants