When you start preparing your tax return, you will probably think about your P60, invoices, receipts and other tax documents first. Your bank statements may seem like something you only check when you need to confirm a payment. But they can be one of the most useful records you have when checking your tax information.

Your statements give you a record of money moving in and out of your account throughout the year. They can help you spot income you forgot to record, find expenses you may have missed and check whether the figures in your accounts match the money you actually received and paid. You do not normally send your bank statements to HMRC with your tax return, but you should keep the records you use to support your figures.

The Importance of Bank Statements in Tax Preparation

Spot Missing Income

One of the biggest benefits of checking your bank statements is that they can remind you about income you may have forgotten. A payment that arrived months ago may not immediately come to mind, particularly if it was a one-off payment rather than something you receive regularly.

This can happen if you earn money from freelance work, rent out a property, receive savings interest or have another source of income alongside your main job. Go through your statements carefully and mark payments that you need to investigate. You can then compare them with your invoices, rental records, payslips or other documents to make sure everything that needs to be reported has been included.

Remember that not every payment into your bank account is taxable income. Transfers between your own accounts, refunds, borrowed money and some other payments may have nothing to do with your tax return. The purpose of checking your statement is to identify anything that needs attention, not to treat every transaction as income.

Find Forgotten Expenses

Your bank statements can also help you find expenses that you have overlooked. You may remember paying for a large piece of equipment but forget about smaller costs that came out of your account every month. If you are self-employed, some costs can be claimed as allowable business expenses if they meet HMRC’s rules. These can include certain office costs, travel expenses, insurance, advertising and professional fees.

Go through your statements and look for payments that relate to your work. Once you find one, check your receipts or invoices and make sure you understand exactly what the payment was for. This is particularly useful when you have made regular payments to the same supplier throughout the year.

Check Your Figures

Your bank statements can act as a second check against the figures you have already prepared. If your records say you received £20,000 from your business but your statements show something different, stop and find out why before submitting your return.

There could be a perfectly reasonable explanation. Perhaps you invoiced a customer in one tax year but received the money in another, or you received a refund that appears as a payment into your account. There may also be cash transactions or payments through another account that are not included in the statement you are checking.

This is where reviewing your statements can make tax preparation Edinburgh much easier. Having the actual transactions in front of you gives you something concrete to compare with your other records instead of relying on memory.

Clear Up Unusual Payments

Sometimes, a bank statement will not give you an answer. It will give you another question. You might see a payment with a description you no longer recognise. Perhaps you know the name of the business but cannot remember what you bought, or you see a transfer and cannot remember why you made it. Do not simply ignore these transactions because they seem unimportant.

Check your emails, invoices, receipts and other records to work out what happened. If you still cannot find the information, contact the relevant business or bank where appropriate. Keeping a clear explanation for unusual transactions can be useful if you ever need to show how you arrived at the figures in your tax return.

Separate Business and Personal Spending

Using one bank account for everything can make this process harder. Your statement may contain your mortgage payment, supermarket shopping, business software, client payments and dozens of other transactions all mixed together. You then have to work through the statement and decide which payments relate to your business and which do not. This takes time and increases the chance of overlooking something.

If you are self-employed, consider using a separate account for business transactions where practical. It makes your records easier to follow and gives you a much clearer picture of your business income and spending. You should still keep the supporting invoices and receipts because the bank statement alone may not explain what a payment was for.

Support Your Tax Records

A bank statement can show that money was paid or received, but it may not explain the full reason behind the transaction. This is why it should be used alongside your other records.

For example, your statement might show a £500 payment to a supplier. The invoice can tell you what you bought, when you bought it and whether the whole amount was a business expense. Together, the two records provide a much clearer picture.

HMRC requires self-employed people to keep records of their sales, income, business expenses and other relevant information. You should keep these records for the required period after filing your tax return.

Make Missing Records Easier to Find

Bank statements can be particularly helpful when your paperwork is incomplete. You might have lost a receipt or be unable to find an old invoice, but the statement can at least show you when the payment was made and who received it.

That information gives you somewhere to start. You may be able to search your emails for the supplier’s name, request another copy of an invoice or check your accounting software for more details.

Do not use the bank statement as a replacement for proper records when you can obtain the supporting document. Instead, use it to identify gaps and help rebuild your records where necessary.

Keep an Eye on Savings and Other Income

Your statements are not only useful for business owners. They can help anyone check whether they have received other types of income during the year. Savings interest is a good example. If you have money in several savings accounts, you may not immediately remember how much interest each account has paid. Looking at your bank records and checking the relevant statements from your bank or building society can help you keep track of this income.

The same principle applies if you receive money from investments, freelance work or property. When you have several sources of income, checking your accounts can help you avoid leaving something out of your tax records.

Check Before You File

A quick review of your bank statements can catch easy-to-overlook things while preparing for tax. Use them alongside your invoices, receipts and other records, rather than relying on them alone. The earlier you check your statements, the easier it is to find missing information and correct mistakes.