Running your freelance business - Paperwork & ‘must-keep’ records

When it comes to paperwork for your freelance business, HM Revenue & Customs lay down the requirements for sole traders.

What to keep and how

They say that as a minimum, you must keep “a record of all your sales and takings and a record of all your purchases and expenses… so that you can fill in the tax return fully and accurately.”

HMRC also say that your records can be either paper records or scanned on to a computer (except dividend vouchers for limited companies).

Even if your business is registered for VAT, there’s still no set way to keep records, so follow the criteria above. That said, there are additional requirements that you must keep to when your business is registered for VAT.

Key documents for freelancers

Let’s look at some of the paperwork you’ll have to handle as a freelancer who is a sole trader:

  • Invoices that you issue to your customers, to ask them to pay you for your goods or services, or receipts if payment is made upfront
  • Bills that your suppliers give you, which you need to pay
  • Bank statements
  • Receipts for payments that you don’t have an invoice for, such as petrol, or milk bought from the corner shop
  • VAT returns, if your business is registered for VAT
  • Other tax returns such as your self-assessment tax return
  • Information about any other money going in and out of the business

What not to do with paperwork

Don’t be tempted to just bundle all this paperwork into a carrier bag and give it to your accountant once a year. For one thing, your accountant will almost inevitably get extremely fed up with this! For another, this means you won’t be able to get any sort of meaningful information about how your business is doing. And last but not least, if HMRC ever come to call then you’ll never be able to lay your hands on the vital piece of paper they’re sure to want – and they can penalise businesses for poor record-keeping.

Organise your paper mountain

Raid your local stationer for file dividers, plastic punch pockets and lever-arch files. Don’t bother with ring-binders, you’ll rapidly outgrow them. Keep a file for each kind of records, for example, a file for invoices, a file for bills, a file for bank statements. Divide these files using your dividers. Find a system that works for you, but just make sure you can quickly find any piece of paper.

Separate out receipts for costs that you paid for personally, for example, using cash out of the your own back pocket rather than cash out of your business’s petty cash box. It’s important to keep these separate (especially if your business is a limited company).

What if you’ve lost receipts and other records?

If you lose any of your pieces of paper, make a note of this, because HMRC say you must do your best to recreate your records if they’re lost or destroyed. So make a note of what you bought when, and put a note in the “Additional Information” section of your tax return to let HMRC know you’ve included estimated figures.

How long you must hang on to paperwork

HMRC lay down rules for how long you should hang on to your paperwork after your tax return has been filed. If you’re a sole trader, you must keep your business’s records for five years after the 31st January filing deadline for that tax year. So for the tax year ended 5th April 2011, the filing deadline is 31st January 2012, so you must keep your records for that year safely until 31st January 2017.

But if you file your tax return late, then you’ll have to hang on to your records until either the usual date or 15 months after you file your tax return, whichever is the later.

And if HMRC start a check into your tax return, you’ll have to keep your records until HMRC write and tell you they’ve finished the check. HMRC undertake checks at random, so don’t panic if your records are selected for checking – it doesn’t mean they think you’ve done anything wrong. But if you file your tax return late they have longer to instigate a check – another incentive to file on time!


7th October 2011

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