If you make income working alone through the selling of a product or a service and you are not registered as a limited company, you are classed as a sole trader. A sole trader does indeed run their own business and is classed as self-employed. Being self-employed does require certain accounting records needing to be kept to report your income, expenses and profit to HMRC on your annual tax return. If you are a partner in a business you are also considered to be self-employed and need to ensure that the partnership keeps all relevant accounting records to report your share of the income, expenses and profit generated from the return to your self-assessment tax return.
The Records Required
Being self-employed, there are a few records that you need to hand.
First of them would be your details around all sales and income. Not all income you have is trading income, such as an investment you make into the business or any loans your receive from third parties. These are not taxable income either.
Any grants which you may have received such as a SEISS or Furlough claim if you are an employer are classed as taxable income and will be required for your tax return. You must document all expenses relating to the selling of your product or service and the running of your business through them. This covers a range of areas such as any materials, advertising, insurance, phone bills and stationary, as well as other costs. This would include wages also for any staff, but not your own.
Providing copies of your VAT return and any VAT you have paid or reclaimed if you are VAT registered, which must be supported by the transactions making up the total of each box on your VAT return is also required, along with records of any wages or deductions if you are an employer.
Tax Return
In preparing your tax return, your total income for the year will have to be entered along with your total expenses. All profits made throughout the year will be taxable, and by having your accounting records organised and up to date throughout the year by bookkeeping services, you will be able to easily calculate the two figures.
HMRC may want to check all figures that are submitted in your tax return and will request proof of your income and expenses. Therefore, it is recommended that all copies of your sales invoices, till rolls, invoices and receipts on all purchases and bank statements be accessible to hand in paper or electronic formats.
For more information on self-employed bookkeeping and accounting records, contact the team at Pebbles for bookkeeping services in Manchester.