Bookkeeping for an Individual Entrepreneur: What to Keep, What to Store and Where the Risks Are

What an IE must keep under the Tax Code

• cumulative records of total income, for turnover tax and to monitor the 1 billion soum threshold (Article 461);
• invoices, as a rule electronic, in the e-invoice (ESF) system (Article 47);
• social tax for oneself: at least 1 BCV (base calculation value) per month (Article 408);
• personal income tax (PIT) and social tax on employees' salaries (Articles 381 and 405);
• retention of tax returns and documents for at least three years after the year of filing (Article 84).

What IE bookkeeping includes

The scope of an entrepreneur's obligations depends on the chosen tax regime and type of activity. The general logic is: the more complex the regime and the more transactions, the closer an IE's records come to full accounting.

Even in the simplest case, an entrepreneur must be able to prove income, keep documents for expenses and calculate liabilities on time. The exact list is set by the accounting legislation and the tax rules in their current version.

• recording receipts from the business
• documentary support for expenses
• recording settlements with customers and suppliers
• cash transactions and work with the business bank account
• settlements with employees, if any
• calculation of tax liabilities and reporting

Why an IE cannot keep the books in their head

While turnover is small, the entrepreneur remembers every deal and gets by without a system. The problem appears later: when documents for a past period are requested, in a dispute with a counterparty, or when trying to obtain bank financing.

Reconstructing records after the fact is always more expensive than keeping them from the start. By then some documents can no longer be obtained, and counterparties may have ceased operating.

Documents: what to collect and how long to keep them

A source document is the only proof that a transaction took place. A verbal agreement or a card transfer without a payment reference is not proof.

Retention periods are set by legislation and differ by type of document, so rely on the current version of the rules. The practical rule is simple: do not throw anything away until the period is finally closed.

• contracts with counterparties and their annexes
• invoices and certificates of work performed
• waybills and documents for goods purchased
• bank statements and cash documents
• documents relating to employees
• tax returns filed and confirmations of receipt

Typical mistakes in IE bookkeeping

The most common is mixing personal and business funds. When payments arrive on a personal card and business expenses are paid from the same card, it is almost impossible to separate one from the other a year later.

The second is expenses without documents. The entrepreneur actually spent the money on the business but cannot prove it, and the expense is disallowed. The third is preparing returns on the last day, so errors are found only after filing.

• business and personal money flow through one channel
• expenses are not supported by documents
• contracts are verbal or lack essential terms
• payments to employees are not properly documented
• no system: documents are kept in messengers and folders without order
• a change of tax regime is not reflected in the calculations

When it is time to hand IE bookkeeping to specialists

There are usually several signals: employees have been hired, transactions with foreign counterparties have begun, the volume of documents has grown, or the entrepreneur has moved to a more complex tax regime.

Another clear signal is a request from a supervisory authority when the documents for the period cannot be gathered quickly. In that situation it is wiser to start with a diagnostic review than to try to settle the matter in one evening.

How we keep an IE's books

We start with a diagnostic review: we look at the current tax regime, the types of transactions, whether there are employees and the state of the documents. Already at this stage it is clear whether there are risks in past periods and whether records need to be reconstructed.

Then we set up a procedure: how and when documents are handed over, how cash settlements are recorded, what to do with non-standard deals. After that the bookkeeping follows a cycle: collecting documents, recording transactions, calculating liabilities, reporting.

We separately discuss separating personal and business money: without this step no bookkeeping will give the entrepreneur a reliable picture.

Why entrust your bookkeeping to an audit firm

Leader Audit is an audit firm. Over 13 years of practice we have carried out more than 220 audits and helped clients recover more than 200 billion soums of VAT.

For an individual entrepreneur this means a practical approach: we look at the documents through the eyes of an inspector and close weak spots before a supervisory authority takes an interest in them.