How Long Do You Have To Keep Records For HMRC When You’re Self Employed?

Most UK citizens file their tax returns online and the relevant details are available on the official websites. So, let's learn how long you have to keep records for HMRC.

Tax Rules for Self-Employed

The law requires self-employed individuals to keep records of all their business transactions, income, expenses, and other relevant documents. This practice serves several purposes, including fulfilling tax obligations, providing evidence in case of an audit, and supporting financial forecasting.

As per the latest tax laws in the UK, the general rule for retaining financial records as a self-employed individual is five years from the tax year's end. For instance, if the tax return deadline is January 31, 2023, for the tax year ending April 5, 2022, records should be retained until at least January 31, 2028.

However, this taxation rule is not rigid. It is different for different scenarios and there are exceptions to this provision as well. The following are the exceptions:

VAT Records:

If you're registered for Value Added Tax (VAT), you must keep VAT records for at least six years.

PAYE Records:

For businesses with employees, PAYE (Pay As You Earn) records, including payroll and employee details, should be kept for at least three years from the end of the tax year they relate to.

Capital Gains Tax and Property Transactions:

Records related to property transactions or capital assets should be retained for at least five years after the tax year of the transaction. According to government figures, the UK now has 3.5m sole traders (the most common type of self-employment), making up almost 60% of the total UK business population (6m).

There can be consequences for failing to retain the documents for the specified period. It can lead to penalties or challenges from HMRC tax records through multiple investigations and audits conducted by the authority.

Furthermore, the UK government has also started an initiative named ‘Making Tax Digital’ (MTD) requiring businesses and self-employed individuals to use digital accounting software for record-keeping and filing taxes. This initiative is helpful for those who file tax returns online.

What are My Accounting Records to Keep?

Sales: All sales or other sources of income should be recorded, whether this means invoices, bank statements or third-party transfer apps.

Purchases and Expenses: Be sure to document every expense from office equipment purchases to water bills; this could come in handy for insurance or tax purposes!

Assets: Any item of significant value purchased for your business, such as computers and electrical equipment or machinery, should be recorded so it can be deducted when filing taxes.

Add and Withdraw: Anytime funds are added or taken out from your business account, any transactions that seem irregular should be recorded as these could appear suspicious to tax officials.

Mileage: If fuel expenses are part of your expenses, it is vitally important that you can prove when and why you made each journey - when, how far traveled, duration, destination and purpose.

How Should I Store and Record My Accounting Records?

• Use Monthly Folders: Store all records in a separate folder for each month.
• Track Major Transactions: File asset purchases, withdrawals, and sales immediately.
• Keep Duplicate Copies: Maintain both physical and digital backups of key documents.

Common Mistakes Expats Make

• Not tracking income & expenses, leading to penalties and incorrect tax filings.
• Claiming ineligible expenses, which can result in compliance issues or HMRC investigations.
• Missing filing deadlines, resulting in fines and interest on unpaid taxes.
• Ignoring property allowance and failing to claim the £1,000 tax-free rental income allowance.
• Failing to register for self-assessment by October 5, leading to penalties.
• Misunderstanding tax residency rules, affecting tax status and obligations.
• Not considering joint ownership, which could help reduce tax liabilities.
• Overlooking Capital Gains Tax (CGT) when selling UK property.
• Lacking digital & physical records, making it harder to resolve disputes.

Taxd is one such tax software, recognised by HMRC, that you can use to file your tax returns online under professional guidance.

Conclusion

The duration for keeping self employed records as a self-employed individual in the UK typically stands at five years from the tax year-end. However, variations exist depending on the nature of transactions, including VAT, PAYE, property, and capital gains.

Adhering to these record-keeping guidelines not only ensures compliance with tax laws but also facilitates efficient financial management and provides evidence in case of inquiries or audits by HMRC. UK tax self assessment is one of the best ways for taxpayers to prevent any sort of unfavourable consequences.

FAQs

1. How long do you have to keep records for HMRC in the UK?

The amount of time you need to keep records for HMRC in the UK depends on the type of records you need to keep. You need to keep financial records such as invoices, bank statements, and receipts for at least five years.

2. How long do you have to keep records for HMRC of non-resident landlord tax return?

The records of non-resident landlord tax returns should ideally be kept up to date for the previous six tax years, ending on March 31 of that year. It is rare that auditors will request to view data older than the last four tax years, though, unless they are visiting you for the first time.