4 – Paperwork, record keeping and digital reporting
Last Updated on 14 November 2025
Things to keep
Everyone hates filing, so…
Set up a filing system that’s easy to top up as you go along, and easy to understand if you need to look something up later.
If you’re paid PAYE it’s a good idea to hold on to the following information:
- pay slips
- P60 (each tax year if you’re employed on 5th April)
- P45 (on leaving employment, though not all freelancers get one)
- Bank statements
- Contracts and other agreements
Sole traders and people running companies need to keep hold of:
- Proof of purchase for business-related expenses
- Proof of turnover – i.e. invoices
- Access to bank statements
- Contracts and other agreements
- A record of income and expenses for the business
These are a minimum, and you should keep them for at least 6 years. This is in case you are audited by the tax office, or you have a query about tax.
What are business-related expenses?
Legitimate expenses (or ‘business costs’) can be recorded so that they are ‘offset’ against tax. This means they are deducted from your turnover at the end of each tax year, making your taxable profit smaller.
Every business is potentially different, so technically every business’s costs could be different. But there are parameters:
View outline of business expenses for self-employed people on gov.uk >
View self-assessment help sheets on gov.uk >
Sole Traders can also make use of special flat rates which are called simplified expenses. These include a sliding scale of flat rates for ‘use of home’ which covers heating and lighting the place in your home where you work.
The rates are not particularly generous, but they cut down on the paperwork. [Simplified expenses are not available to Limited Companies.]
View simplified expenses for sole traders >
We have set up an online calculator to help you work out sole trader ‘use of home’ expenses.
Sole Traders also have a Trading Allowance of £1000, which means you don’t have to report precise expenses figures on the tax return.
This can be beneficial if you have low expenses. But you still need to keep records so that you can tell if your actual expenses are more than £1000.
We have a spreadsheet for recording turnover and business expenses, with a guide to the expense categories and a tab for recording any costs in each category:
Download sole trader income and expense account spreadsheet >
Read a great overview of the Trading Allowance from the Low Income Group >
‘Making Tax Digital for Income Tax’ (MTD for IT) – a big change for sole traders and landlords
HMRC is introducing a new system of tax reporting. Eventually nearly every sole trader (or landlord) will have to:
- report income and business expenses every 3 months
- use HMRC-authorised ‘cloud accounting’ software to do it
The date for reporting income tax in this way by some sole traders is April 2026 (delayed countless times for countless reasons).
We have moved all our MTD information to a special MTD section under ‘FreeStuff’.
Click here to read all about Making Tax Digital for sole traders:
https://davidthomasmedia.com/freestuff/making-tax-digital
Can PAYE freelances get tax relief on costs?
HMRC is very suspicious of people who are paid as employed wanting to get tax back on expenses.
In their eyes it is the employer’s responsibility to reimburse their employees for out-of-pocket costs.
However there may be some scope to get tax relief in some categories of expense, as long as the employer is not reimbursing you.
You won’t be reimbursed for the whole expense – that’s not how tax relief works! But you might get a slightly lower tax bill, or a tax rebate at the end of the year.
To make things clearer, HMRC changed their systems slightly in December 2024, and you can read more about the process on this page:
Don’t get caught out (HMRC website) > (Opens in new tab)
Note that you need to have proof AND a justification for asking for the tax relief.
Find out more:
www.gov.uk/simplified-expenses-checker – Flat Rate expenses tool for car journeys and heating/lighting/use of home
www.gov.uk/…HRMC…/contact/self-assessment – Contacts for HMRC if you need guidance when filling in a tax return
www.gov.uk/…/self-assessment-helpsheets-main-self-assessment-tax-return
https://davidthomasmedia.com/freestuff/making-tax-digital/ – Our special guide to Making Tax Digital for sole traders
www.gov.uk/…-making-tax-digital – loads of MTD info
www.gov.uk/…/using-making-tax-digital-for-income-tax – how to use MTD for income tax
Disclaimer: We’re not saying any of these software providers are good or bad. Check them out at your own risk. If you have an accountant they should recommend the most appropriate.
We’re not pushing FreeAgent in particular, but it’s the one David Thomas Media uses. If you decide to go for it, you can get 10% off by clicking this button:
Income tax example – Sole Traders:
Before Making Tax Digital:
After Making Tax Digital:
Posted on 28 January 2020