What records a sole trader should keep, and how

A sole trader and the business are one person. The records still have to show the business money on its own.

Sales records

A copy of each invoice and a note of every amount received.

Purchase records

Receipts and bills for what the business bought.

Bank records

Statements for the account the business uses.

Mileage log

The date, the reason and the miles of each business trip.

Records can be kept on paper, in a spreadsheet or in software. A clear photo of a receipt is a record too.

HMRC sets how long records must be kept, which sole traders must keep them in software under Making Tax Digital, and whether income is counted on the date of the invoice (the accruals basis) or on the day the money arrives (the cash basis). Those rules change, so they are not given here: the current ones are on GOV.UK. This guide is practice in keeping the record. It is not tax advice.

A bank account used only for the business is the simplest way to show the business money on its own. Every line on its statement is then a business line.

With one mixed account, a business cost is easy to miss, a private cost can be counted as a business cost by mistake, and checking the record against the bank takes far longer.

Drawings

Money you take out of the business for yourself. It is not a business cost.

Capital

Money you put into the business from your own pocket. It is not business income.

What the money was for decides it, not which card paid. A business cost paid with your own money is still a business cost: record it and keep the receipt.

Only money earned from customers is business income. Savings you pay in, or a private loan repaid to you, are not income, whichever account they land in.

A simple record is a list with one line for each amount that comes into or goes out of the business.

Each line has a date, what it was for, and the amount in the Income column or the Expense column. Each cost also has a type, such as materials or travel, because at the year end the costs are needed by type.

Profit is the total of the Income column less the total of the Expense column.

Drawings are noted, but kept out of the Expense column. They do not change the profit.

A receipt proves that a cost was paid, when, to whom and for what. A card slip that shows only the total is weak proof, because it does not say what was bought. Keep the itemised receipt as well.

1. Open a bank account that is used only for the business, and run every business payment and receipt through it.
2. Each time a customer pays, add a line: the date, who paid and the amount in the Income column. Keep a copy of the invoice.
3. Each time you pay a business cost, add a line: the date, what was bought, its type and the amount in the Expense column.
4. Keep the itemised receipt for each cost. File receipts in date order, month by month, on paper or as photos named with the date and the supplier.
5. Log each business trip on the day: the date, the reason and the miles.
6. Note any money you take out for yourself, and any you pay in, outside the two columns.
7. Once a month, tick each receipt against the record, and the record against the bank statement. Look at any line with no receipt, any receipt with no line, and any two figures that differ.
8. Total the Income column and the Expense column, and add up each type of expense on its own.

If the record is totalled as the year goes, the year end is only adding up.

Rookery Garden Care is one self-employed gardener. This is the record for May.

The three receipts from customers come to £1,275.00. The four costs come to £251.00. Profit for May is £1,275.00 less £251.00, which is £1,024.00.

By type, Materials is £156.00, Travel is £64.00 and Insurance is £31.00. The three types add back to £251.00.

On 31 May the gardener moves £500.00 from the business account to a personal account. That is drawings. It is noted beside the record and stays out of the Expense column, so the profit is still £1,024.00.

• Running the business through a personal account. Every line then has to be sorted by hand.
• Counting savings paid in as income. Money you put in is capital.
• Putting drawings in the Expense column. Money you take for yourself is not a business cost.
• Counting a private cost as a business cost because the business card paid for it.
• Keeping only the card slip. It proves a payment, but not what was bought.
• Dropping a real cost because its receipt is lost. Keep the line, ask the supplier for a copy, and keep the bank statement line that shows the payment. Never write a receipt yourself.
• Leaving the record until the year end. A month is easy to check. A year is not.

• Every line in the record has a receipt, a bill or an invoice behind it, and every receipt has a line.
• Each figure in the record is the figure on its receipt. If the two differ, look at both. The receipt was written by the supplier at the time.
• The types of expense add back to the total of the Expense column. If they come to more, a cost has been counted twice. If they come to less, a cost has been missed.
• Every line on the business bank statement is in the record, as income, as an expense, as drawings or as capital.
• No private spending is in the Expense column, and no money you paid in is in the Income column.