Maintaining comprehensive financial records is essential for a number of reasons, including budgeting, planning, and applying for loans and investments. Perhaps even more so, accurate financial records are crucial for your Income Tax Self Assessment: HMRC may ask to check your comprehensive records to ensure you are paying the correct tax.
With the upcoming Making Tax Digital changeover, it is more important than ever to keep on top of your finances as we shift over to mandatory digital record-keeping and quarterly tax returns (this is already the case for VAT businesses). In this article, we outline some top tips to help you keep on top of your Self Assessment financial records.
Keep a detailed record of all relevant finances
Although specific details will vary between individuals and their businesses, here is a typical list of records you should aim to keep organised:
- All sales and other income for your business – including invoices and bank statements for each financial year
- All business outgoings – e.g. expenditure or withdrawals from your business bank account
- Potential tax-exempt purchases or services – e.g. business stationery, rent, and maintenance of premises
- Details of business travel – destinations, mileage, dates and purpose of travel
Store your records long-term
It’s important to store your records safely in case you or HMRC needs to refer to them in future. If you’re self-employed, you need to keep financial records for at least 5 years after the submission deadline of the relevant tax year (usually 31 January). For instance:
You file your 2022–2023 Income Tax Self Assessment by 31 January 2024.
You must keep the relevant records until 31 January 2029.
Make sure to keep a copy of your records somewhere safe!
Keep your records digital
With the introduction of the Making Tax Digital initiative, it is becoming increasingly imperative to store financial records digitally. By 6 April 2026, it will be mandatory for you to keep digital records if your annual business income exceeds £50,000. This threshold will fall to £30,000 in April 2027.
According to HMRC, ‘Making Tax Digital compatible software reduces the scope for making errors when keeping records and filing tax returns.’ Essentially, digital records should reduce the risk of mismatches or other avoidable problems in your tax returns.
Conclusion
Comprehensive financial record-keeping is an essential tool in tax compliance and forms a key indicator of your overall financial health – don’t forget to keep on top of it! For more details, and to check the most up-to-date guidance, make sure to visit HMRC.
Alternatively, why not consider allowing us to take care of the details and help with your tax return obligations? Our services at AbraTax are long-term compliant, meaning that we are already preparing our users for the Making Tax Digital changeover.
If you run a business which meets the threshold for VAT returns, then you are now required to maintain digital financial records and file quarterly returns using compatible software. AbraTax is an HMRC-recognised bridging software designed exactly for this end. We offer simple and affordable compliance, a place to view and manage current and historic records, and the ability to keep track of multiple VAT registrations – all from within your personalised dashboard.