All businesses have to keep records of their transactions, mainly receipts and payments, in order to pay the right amount of VAT etc. HM Revenue & Customs have a very good guide which tells you all about this.
Click here to see the HMRC factsheet.
I can give you a made to measure Excel based system which makes the burdensome but necessary task of dealing with VAT as easy as it could ever be, even including the complications of partial exemption for which the adjustments to input tax are calculated automatically. It’s all as easy and straightforward as entering figures in an analysis book but provides lots more:
Bank Reconciliation - to make sure you don't overlook any tax allowable costs.
Analysis - to see just what your sales to date are and what you have spent on materials, overheads etc.
Easy Tax Inspections - to have the facility to produce printouts showing just how quarterly VAT returns have been calculated will make for a happy VAT inspector!!
Tax Liability through the year - Sole traders will be able to see how their tax and Class 4 National Insurance bill is building up each month of their accounts year so they can get an accurate estimate of how much they should be putting by for those January and July payments.