As a trader or self-employed individual, you need a proper system in place to keep track of your revenue, expenses, profits, and also to reconcile your bank account every month. Whether you opt for a software, like Sage or Excel, or use an online bookkeeping programme, like Kashflow or Xero, maintaining perfect record of your inflow and outflow is a must.

You should never be put in a position where you money runs out or you finally figure out that certain customers have not cleared your dues for months. There are several tools that have made bookkeeping easy; some even come with mobile phone apps that let you capture costs as you incur them. Hence, you have no excuse when it comes to flawless record-keeping.

Complying with HMRC

HMRC mandates entrepreneurs and traders keep copy of receipts, but original receipts are not a requirement.

To make it easy for yourself, it is best to follow the tax year and divide your records into accounting periods. You can have a 12-month accounting period that coincides with the tax year or shorter periods of 3 months. Your record-keeping should be able to separate the money you spend on day-to-day running of your business and the expenses you incur on your assets. The latter is known as capital expenditure.

Usually, you have to maintain full records of the following:

• All sales and turnover with copes of invoices and receipts
• All business expenses and purchases
• Receipts of monies paid as expenses. This includes payments made for materials and stock
• Mileage records
• All bank deposits and withdrawals, including paying-in books and cheque stubs
• Maintenance of separate records for purchases and sales of equipment, vehicles and machinery with their respective receipts
• Details of wages you take as well as the amounts you take from the business for personal use

In cases where money was spent on personal and business use, maintain records of just business use. Also, if you owned vehicles and equipment prior to starting the business, make sure you keep a record of the market value of these items when you introduced them into your business.