Tax records of a sole trader

What it means

Tax records are the simplified way a sole trader keeps their books when claiming flat-rate expenses instead of actual costs. They keep neither single-entry bookkeeping nor a record of expenses; the law asks only for three lists.

These are a chronological record of business income, a record of inventory and a record of receivables. Income is entered on the day the money reached the bank account or the till, while inventory and receivables are established at least at year end.

The form is not prescribed: a spreadsheet, a notebook or a simple program will do. What matters is that every entry is backed by a document, invoice, bank statement or receipt, and that total income matches the figure in the type B tax return.

How it works in practice

For sole traders on flat-rate expenses we prepare the records directly from bank statements and issued invoices. A simple invoice book is enough for them to track unpaid invoices, and it doubles as the record of receivables.

If the sole trader is a VAT payer, the records are extended with VAT entries: purchase invoices, deductions and the data for the control statement. Flat-rate expenses for income tax do not remove the duty to keep VAT documents.

Records and documents must be kept until the period in which the tax office can assess tax has expired, in practice at least five years from the end of the year and longer where a loss has been claimed. Archiving documents electronically is permitted as long as they can be displayed and printed at any time.

What to watch out for

Flat-rate expenses do not mean nobody cares about costs and income can be estimated. At a tax audit the tax office compares the records with bank movements and with customers’ control statements, and unrecorded income means back tax, contributions and a penalty.

When switching from flat-rate to actual expenses or back, the tax base must be adjusted for inventory, receivables and payables at the last day of the year. Without records of inventory and receivables this adjustment cannot be made correctly and the switch can become expensive.