Recap: Getting set up

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

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

Records are kept for years after the tax return is sent, because HMRC can ask to see them.

The rule used in this room: keep the records for a tax year for at least 5 years after the 31 January deadline for that year. Check GOV.UK for the current rule.

The tax year runs from 6 April to 5 April. The online return for it is due by the next 31 January.

Cash basis

income counts on the day the money arrives, and a cost counts on the day you pay it

Accruals basis

income counts on the date of your invoice, and a cost counts on the date of the bill, paid or not

Both ways reach the same total in the end. They differ in which month or year a figure lands in.

HMRC sets which basis a sole trader may or must use, and the rule has changed before. The current rule is on GOV.UK.

A receipt proves that a cost was paid, when, to whom and for what.

• The supplier's name
• The date
• What was bought
• The amount paid

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.

Records are kept for years after the tax return is sent, because HMRC can ask to see them.

The rule used in this room: keep the records for a tax year for at least 5 years after the 31 January deadline for that year. Check GOV.UK for the current rule.

The tax year runs from 6 April to 5 April. The online return for it is due by the next 31 January.

A receipt proves that a cost was paid, when, to whom and for what.

• The supplier's name
• The date
• What was bought
• The amount paid

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.