Set up a profit and loss account for your business

Whatever your business type, you must keep accurate records of your income and expenditure. You need to keep self-employment records for five years after the 31 January deadline - and you may need to keep them for longer if you file your return late or if HM Revenue & Customs starts a check. You need to keep limited company or partnership records for six years after the latest date your tax return is due.

Accurate record keeping has important benefits. It:

• gives you the information you need to manage and grow your business
• enables you to report on your profit or loss easily and quickly when required
• will improve your chances of getting a loan or mortgage
• makes filling in your tax return easier and quicker
• makes completing VAT Returns straightforward - if you are registered for VAT
• helps you or your business pay the right tax
• provides back-up for claims for certain allowances
• helps you plan and budget for tax payments
• reduces the risk of interest on late payments or late-filing penalties
• helps reduce fees if you use an accountant - your annual accounts will be far easier to produce

The basic records you will need to keep are:

• a record of all your sales and takings
• a record of all your purchases and expenses

You may also need to keep:

• a separate list for petty cash expenditure if relevant
• a record of goods taken for personal use and payments to the business for these
• a record of money taken out for personal use or paid in from personal funds - this applies to limited companies
• back-up documents for all of the above

You will need the information above to create your profit and loss account and to complete your tax returns.

For detailed information on the records you must keep, see record-keeping and tax.