If you are self employed you are legally required to keep records in order to file an accurate tax return. Failure to do so could result in a fine of £3,000.
Bank statements, receipts, invoices and any other documents relevant to trading income should be kept. If you are registered for any other schemes such as CIS or pay VAT then you will have additional record keeping responsibilities. If you are using something for both personal & business use you would need a way to differentiate between the two. Example, a vehicle used for both business and personal travel – you would need to record business mileage so that along with the total mileage you could work out the business use proportion of vehicle expenses. Basically, you must be able to back up all income and expenditure with proof.
You must keep business income records for five years after the submission deadline. For example, if the records are for the tax year 2019 – 2020 then the submission deadline for that year would be the end of January 2021. You would need to keep the records until at least the end of January 2026. If you submit your tax return more than 4 years late you must keep the records for 15 months after submission.
If you are not exempt from completing a tax return (due to the Trading Allowance) you will need to keep records of any other personal income too because for Self Assessment all income must be declared not just that which relates to self employment. This may come from other sources such as employment, pensions, savings and investments – there are others too. You may also want to claim relief for pension contributions and other allowed items. Keep everything – P60s, P45s, annual savings interest statements, dividend vouchers, pension contribution statements and any other financial statement or certificate.
For personal records such as P60s, savings interest statements to name just a couple the time period for keeping the records is much shorter at 22 months after the end of the relevant tax year or in the case of late submission at least 15 months after submission.
If you have mainly electronic invoices / receipts you do not need to print them off. If you have paper receipts you can scan them and keep electronic copies as long as the electronic copy captures all information – front and back. There are some documents showing amounts for tax which must be kept in their original form for example P60s and bank interest certificates. So if you receive these in paper form you need to keep the paper form. Records in whatever form should be stored in an organised way so that you can find something if you need to – date order usually works well.
If you are storing data electronically it should be backed up to a secure location – physical devices such as laptops & USB drives can be damaged, stolen or hacked. Some cloud storage providers offer a small amount of space for free. e.g. Sync. If you are using cloud accounting software such as Quickbooks you will be able to upload & store bills, receipts, etc. on their servers.
Data Protection / GDPR
If you are storing personal information (information that can identify a living person) you may need to register with the ICO and learn how to comply with data protection laws – there is an annual fee for registration. If you are storing personal data it is very important that the data is secure (encrypted) – both while being stored & while in transit (being sent somewhere). Be aware that standard email is not secure. There are financial penalties for businesses (including sole traders) that do not protect the personal data of others. ICO has a section dedicated to small business & sole traders.
Go to ICO
Note that there is a Trading Allowance which may affect the kinds of records you need to keep.