Set up a basic record-keeping system
What should my record-keeping system include?
There are six basic sets of financial records that should help you run a tight business:
- the cash sales book
- the cash purchases book
- the cash book summary
- the sales ledger
- the purchase ledger
- the wages book (only needed if you employ staff)
From 6 April 2024, cash basis will become the default method of accounting, You must opt out if you want to use traditional accounting or cannot use cash basis accounting. See cash basis changes from the 2024 to 2025 tax year.
How long you need to keep your records
The law states that all business owners must maintain financial records and retain them as a general rule for a minimum of six years. However, if you are:
- self-employed, you must keep records about your business income and costs for at least five years after 31 January submission deadline for Self Assessment of the relevant tax year
- an employer, you need to keep Pay As You Earn (PAYE) records for three years (in addition to your current year)
- a contractor in the Construction Industry Scheme (CIS), you need to keep your CIS records for three years (in addition to your current year)
- keeping records to complete a personal (non-business) tax return, you only need to keep them for 22 months from the end of the tax year to which they relate
See how long to keep your records.
What should my record-keeping include?
Although the level of record keeping required may vary from business to business, it should include:
- all sales and income
- all business expenses
- VAT records if you're registered for VAT
- PAYE records about your personal income
- any rant payments
Keep proof
It is important that you keep accurate, relevant financial records and update them on a regular basis. You may incur a penalty if you're unable to back up the statements made in your income tax or VAT (if it applies to your business) returns.
To help you prove and keep track of income and expenditure you should keep:
- all receipts for goods and stock
- bank statements and chequebook stubs
- sales invoices, till rolls and bank slips
There are no rules about the format you must use to record your figures - those kept on paper are just as valid as those stored in digital format. However, you must keep some VAT records digitally, unless you're exempt from following Making Tax Digital for VAT rules. Find out more about keeping VAT records.