Self-Employed Bookkeeping - What You Must Keep
A self-employed person in Israel isn't required to be an accountant, but is required to keep books. The gap between those two is where the confusion sits: part of the work has to happen with you, as it happens, and part of it can be handed on at the end of the period.
What the law requires
Bookkeeping duties are set in the bookkeeping regulations, which sort businesses by field, turnover and headcount. For most small self-employed businesses that means single-entry: a receipts and payments ledger, alongside the documents themselves. Double-entry books are required in certain fields and at certain sizes, not by default.
What doesn't depend on the method is the documents. Everything you issued and everything you received is part of the books, and keeping them for seven years is a duty that doesn't end when the business closes.
- Outgoing documents: invoices, receipts and credit notes
- Incoming documents: invoices and records backing expenses
- A receipts and payments ledger, or double-entry books where required
- Reports filed with the authorities and their confirmations
- An Open Format export, where the books are computerized
The reporting calendar
This is the part that surprises people in their first year. It isn't one return at the end of the year but a series that runs continuously.
| What | When | To whom |
|---|---|---|
| VAT report | Monthly or bi-monthly, as set for the business | Tax Authority |
| Income tax advances | By the 15th of the month, based on turnover | Tax Authority |
| National insurance | Monthly, against declared income | Bituach Leumi |
| Withholding | Where there are employees or payments subject to withholding | Tax Authority |
| Annual return | After the tax year ends | Tax Authority |
An osek patur files no periodic VAT report, only an annual turnover declaration, a difference set out in the osek patur vs osek murshe guide.
What has to happen with you
Three things can't be handed over, because they happen at the moment the sale does.
Issuing the right document, on time. The document type, the required fields, and above the threshold an allocation number. A wrong document surfaces two months later, when it can no longer be fixed without a cancelling document.
Keeping a record behind every expense. A deductible expense without a document isn't an expense. For an osek murshe the input VAT on it falls away too.
Keeping business and personal apart. A sole trader is under no legal duty to hold a separate bank account, but mixing them is what turns a month's reconciliation into a day's work, both for you and for whoever receives the material.
What is worth handing over
The annual return, the reconciliations, and dealing with the authorities. These are areas where a mistake costs more than the fee, and most self-employed people hand them to a representative even while running the day-to-day themselves.
The price there is set less by an hourly rate than by the state the material arrives in. Books that arrive as a valid Open Format file, with gapless numbering and signed documents, are checked in hours. A folder of PDFs and spreadsheets is checked in days, and billed accordingly.
Where it breaks
Five patterns repeat in businesses that run into trouble at audit.
Numbering that broke, usually after one invoice issued from Word "just this once". Expenses with no record, discovered only when closing the year. VAT deducted on expenses that don't allow it, such as parts of vehicle costs. Mixed accounts, which produce income that looks like personal deposits and personal deposits that look like income. And documents held only in a system with no export, meaning an archive that can't be produced.
The checks to run before year end are in the year-end guide.
How this works in Slate
Every issued document is signed and numbered from a sequence held on the server, expenses are recorded with the deduction percentage in force on the day they were entered, and the VAT report follows from exactly that data. The Open Format export is available at any time, and it's what the accountant receives instead of a folder. You can issue a first document for free and see how it looks from the other side.
This is general information, not tax advice. The bookkeeping duty specific to your business depends on its field and size, and is worth confirming with an accountant.
Common questions
Does a self-employed person need double-entry bookkeeping?
Usually not. Most small businesses keep single-entry books, a receipts and payments ledger alongside the documents themselves. Double-entry duty depends on the field, the turnover and the number of employees, and is set in the schedules to the bookkeeping regulations.
What has to be kept, and for how long?
Every document going out and coming in, including invoices, receipts, expense records and filed reports, for seven years. A computerized system also has to be able to export an Open Format file.
Can I do all of it myself without an accountant?
There is no legal duty to appoint a representative. In practice the annual return, the reconciliations and dealing with the authorities are what most self-employed people hand over, leaving document issuing and day-to-day recording with them.
Which costs more, doing it myself or handing it over?
A representative's fee follows mostly from the number of documents and the state they arrive in. Clean books with a valid export are what lowers the bill, not negotiating the rate.
Do I need a separate business bank account?
There is no legal requirement for a sole trader, but mixing personal and business accounts is what turns a month's reconciliation into a day's work. A separate account is the cheapest thing you can do for the books.
What happens when an expense has no record behind it?
The expense isn't recognized, and for an osek murshe the VAT on it can't be deducted either. There is no way to fix that after the fact other than obtaining the document from the supplier.