Tax filing is one of the things that most business owners put off for a long time – until the first irregularities come up when filling out a tax return, or until the Tax Office requests supporting documents. A simple rule of thumb: if you set up your tax records clearly at the beginning, you will save yourself nerves, time and money.
In this article, we will explain what tax records are, who can keep them, what the difference between tax records and accounting is, what tax records look like in practice, and how tax records differ between VAT payers and non-payers.
Tax records are records for the purposes of determining the tax base and income tax and must contain details of income and expenditure (broken down in such a way that the tax base can be determined from them), as well as details of assets and debts.
In practice, this means that you keep a running record of how much money you actually received, how much you actually paid, what you own for your business (typically equipment, a car, a computer) and what your debts and liabilities are – i.e. who owes you and who you owe. The aim is that you should be able to explain what your tax base is based on (and that your documents should be able to link to this).
So tax records are not just a list of income and expenditure. It is just as important that you record assets and debts. Why? Because assets often don’t go all to expense right away (typically, fixed assets are applied gradually), and debts/receivables help you keep track of whether you’ve been paid or, conversely, whether you’ve forgotten to pay something.
There is no official form for keeping tax records. The law says what the records must contain, but it doesn’t say you just have to keep them on a particular form. Therefore, you can keep tax records in an Excel spreadsheet, physically on paper, or use one of the many tax record-keeping programs.
It is good to remember one more thing: tax records are a tax tool, but they also help you in a real business sense. When you keep it up-to-date, you have an instant overview of whether the business is making money, what expenses you’re picking up, who hasn’t paid you, and where the money is going. And if you keep it sensibly, by the time you file your income tax return, you’re just pulling up the totals – instead of hunting back in March or April for payments and receipts in emails and in a shoebox.
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
A simple rule applies: you can keep tax records if you are not obliged to keep accounting records (i.e. if you are not a so-called accounting entity). Once you become an accountancy entity, tax records are no longer sufficient as your main system of records – the law requires you to keep accounts with all their rules and outputs.
When does a self-employed person become an accounting entity? Most often it is when you are registered as a business in the commercial register (and it doesn’t matter if it is compulsory or voluntary – the registration itself is decisive). The second typical situation is that your business grows and your turnover as defined by the Accountancy Act for the immediately preceding calendar year exceeds CZK 25,000,000. Finally, you can also become an accounting entity by opting for voluntary accounting.
In practice, this means the following: if you are a “regular” self-employed person (e.g. a craftsman, consultant, graphic designer), you are not registered in the Commercial Register and your turnover has not exceeded the above limit, then tax accounting is usually the standard and often the easiest way for you to meet your tax obligations and keep your income, expenses, assets and debts in order.
Read more about how tax records vs. accounting differ.
Tax records are not something you keep for yourself, but records for the purposes of determining the tax base and income tax. The Income Tax Act therefore states that tax records must contain information on income and expenditure (broken down in such a way that the tax base can be reliably determined from them), as well as information on assets and debts.
In practice, this means that it is not enough to have one sentence at the end of the year, ‘income CZK 800 000, expenditure CZK 320 000’. The law wants you to keep records of income and expenditure so that they can be matched back to the documents and it is clear what belongs to the tax base and what does not.
The division between tax and non-tax items is also important. A typical example: when you send money from your business to your personal account, it is a bank movement, but it is not a tax expense. Conversely, paying for materials for a job is typically a tax expense. Well-kept tax records force you to distinguish these things on an ongoing basis – thus protecting your tax base from unnecessary errors.
The second mandatory part is property. It sounds simple (“I have a laptop, a car, and tools”), but it’s legally important because some assets are reflected in tax expenditures gradually (typically through depreciation) and some are reflected right away. The law also refers to the fact that the rules from the accounting regulations apply to the content of the components of assets, unless the Income Tax Act provides otherwise – so it is not just a list of things, but a list that has logic and continuity.
In practical terms, the main thing you can think of as a record of assets is that you know when and for how much you acquired them, what they are used for and how they are taxed (in one lump sum or gradually). Without this, it’s very easy to get the same expense wrong – and that’s exactly the sort of thing the authorities can look for in an audit.
Find out when you can write off your car on your taxes.
The third compulsory part is accounts payable and receivable. An account receivable means that someone owes you (for example, you have issued an invoice and payment has not yet arrived). A payable means that you owe someone else (for example, an invoice for materials has come in and you haven’t paid it yet).
In addition to the Income Tax Act, the Tax Code is key to practice. It works with the concept of ‘recordability ‘ – and says very directly that you must keep the records, registers and documents to which recordability applies until the tax assessment period has expired.
What is the ‘assessment period’? The basic rule of the tax code is that tax cannot be assessed after 3 years. This period typically runs from the time the deadline for filing a proper tax claim (typically a tax return) has passed. But at the same time, it can be extended in various situations – so in real life, it makes sense to hold documents for more than just three years after filing.
The taxman can check whether your records match reality – that is, whether your entries, documents and actual cash flows are related to each other. If they find discrepancies and you can’t explain or substantiate them, you’re in trouble. The Tax Code explicitly allows the tax authority to determine tax by means of aids in situations where, due to non-compliance, tax cannot be determined by evidence.
“Aids” means a qualified estimate based on what the tax authority has available or procures – for example, comparisons with similar businesses, available account data, information from business partners, etc. Crucially, under this regime, you no longer have the situation entirely in your own hands: if the records and documents are not conclusive, the authority has a much wider margin of appreciation and the result may be a higher tax assessment than if you had your records in order.
Once you become a taxable person, you are still required to keep VAT records and be able to prepare a VAT return (and other related returns) from them.
The VAT Act obliges the taxable person (and in certain situations the identified person) to keep records for VAT purposes and sets out what information they must contain – including a link to the supplies you receive for which you claim a deduction, as well as records of business assets for VAT purposes.
And watch out for archiving: you must keep VAT documents for 10 years from the end of the tax year in which the transaction took place, and the law also addresses electronic storage and accessibility of documents.
There are more options for keeping tax records – and the good news is that the law doesn’t ask you for a specific form, but rather that you have the necessary information recorded and can provide evidence of it.
Keeping tax records in a physical notebook or in an Excel spreadsheet is therefore the most typical start. It is simple, cheap and for dozens of entries per month completely sufficient. To make it conclusive even when audited, it is worth setting up a simple scheme: write down each payment immediately (date of payment, amount, description) and note the document number next to the line. Keep your receipts in the same order or at least clearly labelled.
For larger volumes of documents and for more complex administration, a special programme for tax records is worthwhile. The advantage of this program is that it forces you to fill in the necessary fields, can link payments to documents and provides you with tax (and VAT) outputs.
If you’re starting out, or if you’re getting confused about VAT, assets, liabilities and you’re not sure what goes where, it makes sense to invest in a tax accounting course. Good courses will offer practical applications: what the content of tax records should be, how to record assets and liabilities, how to record income and expenditure and how to produce accounts. And if you use a particular software, they will usually offer free training directly on it.
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
In practice, you can best understand the principles of tax accounting by looking at specific situations you deal with every month: you issue an invoice, a payment comes in, you pay expenses, sometimes you put your own money into the business or, conversely, you withdraw money. So let’s take a look at the two most common variants: tax records for a non-VAT payer and a VAT payer.
Imagine you are a self-employed graphic designer, you are not a VAT payer and you keep your tax records in a simple spreadsheet. In September, several common situations will happen to you and we will write them down so that they make sense a year later when you prepare your tax return.
On 2 September, you issue an invoice to your client for a visual identity design for CZK 18,000, payable in 14 days. It is important that you do not record any income in the cash journal yet, because you have not received anything yet. In tax accounting, the date of payment, i.e. when the money actually comes or goes, is typically the decisive factor, not the date of the invoice or the due date. But to keep things straight, you can note the invoice in a simple summary of your receivables (who owes you and how much).
On 12 September, the client pays you CZK 18,000 by bank transfer. Only now is there an income in the cash journal. You make one line in the spreadsheet and fill in the date 12 September, the invoice number (for example, “F2025-009”), the description (“Graphic work – payment of invoice”), the amount of CZK 18 000 and mark it as tax income. “Taxable” in common parlance means that it is an amount that is typically included in the income tax base (as opposed to movements that have taken place but are not earnings from a tax perspective, such as a deposit of your own money).
On 15 September, you pay CZK 1,200 by card for graphics software. Enter the expense with the date 15 September, the document (invoice/receipt), the description (‘Software – licence’) and the amount of CZK 1 200 as a tax expense. a “tax expenditure” means that it is an expenditure incurred to achieve, secure or maintain your income – in practice it must be a business-related expenditure and you must be able to prove it with a document.
On 20 September, you will send £600 by post for printing and sending samples to the client. Again, you record the expense on the date of payment (20 September), attach a document (postage slip/receipt/invoice) and mark the CZK 600 as a tax expense (“Postage – sending of samples”). Here, in practice, people often make the mistake of having the document somewhere in the email, but it is not clear in the spreadsheet what it belongs to – so keep a simple rule for each line: each journal entry must have its own traceable document (paper or PDF).
Now comes the situation that gets confused most often: on 22 September, you send £5,000 to your business from your personal account because you need to cover expenses (or the client won’t pay you until next month). The money has arrived in the business account – but it ‘s not taxable income. It’s a deposit. You didn’t earn this money from the business, so it doesn’t count towards your tax bill. Therefore, you record it as non-tax income on your records (typically labeled “Business Deposit”).
The same logic applies to a loan: if a bank sends you a loan, the money will come in, but the loan is not earnings – you just incur a debt (liability). So, again, it does not go on the books as tax income. It makes sense to record it as non-tax income and note the liability (debt) at the same time.
Finally, a caveat that many self-employed people only realise when they first check: what is not on the register and you don’t document it, it’s as if it wasn’t. The tax code works with recordkeeping and says you must keep records and documents until the tax assessment deadline – so it pays to store documents systematically (either in a binder or in a digital folder by month).
Imagine that you are a VAT payer and you issue an invoice: CZK 10,000 + VAT 21% (CZK 2,100). The customer pays you 12 100 CZK.
In the cash journal you want to achieve two things at the same time: that the figure in the bank fits (CZK 12,100 came in) and that what it has (usually the basis of CZK 10,000, not the VAT) is correct for income tax. In practice, the way to do this is to have columns in the spreadsheet or program for income such as “income (basis)” and “VAT output”, which together equal what came in.
Specifically, you enter the income on the date of payment and divide it: 10 000 CZK into “tax income” (for income tax) and 2 100 CZK into “VAT output” (for VAT agenda). This will ensure that your tax base does not increase by VAT, which you are effectively just collecting for the state.
Then you buy materials for CZK 3,000 + VAT 630 and you are entitled to a deduction. In terms of income tax, you typically want to claim the CZK 3,000 (the base) as an expense, while the CZK 630 will not go towards tax expenses, but towards the VAT deduction (input VAT). Again: in the records/column plan, you do this by splitting the expense into “expense (basis)” and “input VAT”, together this fits the amount paid.
Remember that the date of the taxable supply (DST), which may differ from the date on the invoice, is the relevant date for VAT purposes.
For income taxes, the key issue is the so-called assessment period. The Tax Code provides that the tax cannot be assessed after 3 years and also describes when this period starts to run (typically from the expiry of the deadline for filing a proper return). But it doesn’t stop there – the law also lists situations when the time limit is extended (for example, by 1 year for certain actions in the last 12 months before it expires) or when it can start running again (for example, when a tax audit is initiated). Therefore, it is a good idea to take 3 years as a minimum, not as a certainty after which you can throw everything away.
For VAT, the rule is stricter. The VAT law says that tax documents are kept for 10 years from the end of the tax year in which the transaction took place. This applies not only to traditional invoices, but also to all tax documents in general for VAT purposes. In addition, the law also addresses the fact that a custodian with a registered office or establishment in the country has to keep the documents in the country, unless it keeps them in a way that allows continuous remote access; and it also explicitly allows electronic storage (including conversion from paper to electronic form and vice versa), as long as you preserve the authenticity of the origin and the integrity of the content.
Tax records are a continuous record for determining the basis of income tax: it is not enough to have only income and expenses, but also a list of assets and debts (receivables and payables) so that you can prove what your tax base is based on and how the documents relate to it. It can be kept by a typical “ordinary” self-employed person who is not an accounting unit – once you are registered in the commercial register, you exceed a turnover of 25 million EUR. CZK for the previous year, or you decide to keep the accounts voluntarily, tax records are no longer sufficient. The law does not prescribe any single form, so you can keep it in Excel, on paper or in a program – what is important is the breakdown of items (tax vs. non-tax), the continuity with documents and evidence.
In practice, the date of payment (when the money actually came/went) is the key, not the date of the invoice; business deposits or loans are not tax receipts, just bank movements and possibly liabilities. You must keep the documents for record keeping purposes at least until the expiry of the tax assessment period (3 years in basic terms, often longer in practice), as the tax authorities may assess tax “by way of aid” in the event of irregularities. In the case of VAT payers, there is also the obligation to keep records for VAT (separation of the basis and VAT for income and expenses, link to deductions, business assets for VAT) and also stricter archiving of VAT tax documents for 10 years from the end of the tax period in which the transaction took place.
No, in this case you typically do not keep full tax records. But you still have to keep records of income and accounts receivable (to prove what your tax base is based on).
In general, you can also archive electronically, as long as you can prove the authenticity and legibility of the documents.
Try to get a duplicate (supplier, e-shop, operator), trace the payment confirmation and write an internal record of what happened and how you determined the amount. The more documents you replace with supporting documents, the less risk.
You need to have a uniform rule of conversion to CZK (bank rate / CNB rate according to the situation) and be able to prove it. In practice, it is crucial that you keep a document with the exchange rate used for each payment (statement, PDF, receipt).
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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