You must keep records (external link) of your business income and expenses for your tax return (external link) if you are self-employed as a:
- sole trader
- partner in a business partnership
You will also need to keep records of your personal income.
If you are the nominated partner (external link) in a partnership, you must also keep records for the partnership.
There are different rules on keeping records for limited companies (external link).
You will need to choose an accounting method.
Many businesses use traditional accounting where you record income and expenses by the date you invoiced or were billed.
You invoiced a customer on 28 March 2018. You record that invoice for the 2017 to 2018 tax year - even if you did not receive the money until the next tax year.
Cash Basis Accounting
Most small businesses with an income of £150,000 or less can use cash basis (external link) reporting.
With this method, you only record income or expenses when you receive money or pay a bill. This means you will not need to pay Income Tax on money you have not yet received in your accounting period.
You invoiced someone on 15 March 2018 but did not receive the money until 30 April 2018. Record this income for the 2018 to 2019 tax year.