Sole traders are the most common form of self-employment, with 56% of businesses in the private sector being sole traders. If you’re a sole trader or owner of a limited company, you’re required to file an annual self-assessment tax return. So, how long do you really need to keep a hold of those personal tax records?
How long should you keep tax records?
You must keep your tax records for at least five years after the 31 January self-assessment tax return submission deadline each year, if you’re self-employed. This is because anytime during those five years, HMRC may wish to check your records to ensure that you’ve provided accurate information and are paying the correct amount of tax.
If you run a limited company, you’ll need to keep your tax records for a minimum of six years from the end of the current accounting period.
How should you store your records
You can store your tax records however is most convenient for you. We would recommend that if you have hard physical copies of your tax records, then you should always also create a digital version. This ensures that you have a backup if your information ever goes missing or gets damaged.
Which personal tax documents should you keep?
There are several different types of documents that you need to keep in order to submit an accurate tax return. HMRC can request to see these documents so make sure you store the following:
- Bank statements
- Credit card statements
- Money documents from other jobs or side businesses
- Receipts and payslips from work
- Receipts for work-related expenses
It’s important to note that HMRC has launched a project to digitise the UK tax system, coined Making Tax Digital (MTD). This will require many sole traders to report figures online to HMRC every quarter, finalising them at the end of the year. We recommend that you use MTD-compliant bookkeeping software from April 2023, when those with a turnover of £10,000 or more will need to keep these digital records.
Why is it important to keep personal tax records?
Keeping personal tax records shouldn’t just be seen as a legal obligation, as it does hold plenty of benefits to your own success. If you ever need to check past transactions, having a record is hugely helpful. Keeping business expenses on hand is also important when submitting your tax return, as it’ll reduce the amount of tax you pay.
It’s also a requirement that you keep these tax records for five years, in case HMRC ever needs to verify the information. Fail to present these records and you could be fined.
What can you do if you lose your tax records?
Keeping multiple physical and digital tax records is so important as it’ll prevent this situation from happening. However, if you do lose your tax records, you’ll have to use ‘provisional data’ when filing your tax return. This gives you the opportunity to later confirm the figures further down the line. It’s important to be honest if you’ve lost your records and let HMRC know that the figures are provisional. Otherwise, if they ever want to check your records and you don’t have them, you could be faced with a penalty.
It’s always worth keeping your tax records for at least five years to ensure peace of mind if HMRC ever gets in touch. Using bookkeeping services can help you stay on top of your tax records and ensures everything’s in order when it’s time to file your tax return.
Get in touch
If you struggle with keeping records and your business requirements are such where you find yourself having little to no time to stay organised, it may be time to seek advice and support with bookkeeping, management accounting or cloud computing services. This is where Rayner Essex can help. We have experts in the field of accounting, tax and compliance and are also accredited by many cloud software firms, enabling us to assess your specific business requirements and help you set systems that will make keeping records an easy and seamless process. Feel free to contact us for a free consultation.
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