At the start of a business, the question of tax records versus accounting is one of the most confusing. It sounds like a technical matter for accountants, but it actually decides how much time and money you spend on administration and how detailed a picture of the company you get.
The good news is that the rules are clear. Most sole traders get by with the simplest option, while companies have no choice. Let's explain how the two systems differ and who keeps which.
What tax records are
Tax records (daňová evidence) are a simpler form of record-keeping governed by the Income Tax Act. They work on a cash basis — you record income when the money actually arrives and an expense when you actually pay it. They track income, expenses, assets, receivables and payables, from which the tax base is calculated.
Their great advantage is that the form is not strictly prescribed — in practice a clear spreadsheet is enough. For tax records you usually do not need an accountant and can manage them yourself; you just have to keep your documents carefully. That is exactly why they are the standard choice for sole traders and smaller businesses.
What accounting is
Accounting (formerly called double-entry) is governed by the Accounting Act and is considerably more extensive. It works on an accrual basis — it accounts for revenues and costs in the period they relate to, regardless of whether they have actually been paid. It is recorded by double entry, on the debit and credit sides, and at the end of the period financial statements are drawn up: a balance sheet, a profit and loss statement and notes.
Accounting gives a far more structured picture of the business than tax records, but it is more demanding administratively and financially, so companies turn to an accountant for it. Legal persons must also publish their financial statements in the commercial register, so their results are publicly available.
Who keeps what
The rule is simple. Legal persons — that is, s.r.o. companies and other corporations — always keep accounting, without exception and without a choice. A sole trader (OSVČ), by contrast, keeps tax records by default, or chooses the even simpler expense allowances, under which they record only income and receivables.
A sole trader, however, becomes what is called an accounting unit — and the obligation to keep accounting arises — in several cases: if their turnover for the previous calendar year exceeded CZK 25 million, if they are entered in the commercial register, if a special regulation requires it, or if they choose to do so voluntarily.
When accounting becomes mandatory for a sole trader
The key threshold is a turnover of CZK 25 million. Once it is exceeded, the sole trader becomes an accounting unit from 1 January of the following year and actually keeps accounting only from the next accounting period — the law thus leaves time to prepare. Example: if turnover exceeds CZK 25 million in 2024, the sole trader becomes an accounting unit from 1 January 2025 and keeps accounting from 2026.
The switch is not a one-off: once you keep accounting, you must stay in it for at least five years before you can return to tax records. It therefore pays to watch whether you are approaching the turnover threshold and to prepare any switch in advance together with an accountant.
How to decide when you have a choice
Most sole traders have no obligation to keep accounting and get by with tax records or an expense allowance — they are cheaper and simpler. Voluntary accounting is worth considering for more complex businesses, when you plan to grow, or when a bank asks for financial statements for a loan or an investor requires them. The taxation options are covered in the article sole trader taxes, and the documents for a loan in business loan.
With bookkeeping, and with the choice between tax records and accounting, the accounting and tax firm Wellbens can help.
Conclusion
Companies always keep accounting, sole traders mostly tax records or an allowance — and the main switch is the turnover threshold of CZK 25 million. As long as you have no obligation to keep accounting, choose according to how much oversight and simplicity you need. How an s.r.o.'s profit is taxed is covered in the article corporate income tax for an s.r.o..
Frequently asked questions
What is the difference between tax records and accounting?
Tax records are simpler and work on a cash basis — income and expenses are recorded according to the actual movement of money. Accounting is double-entry, accrual-based (revenues and costs by period, regardless of payment) and ends with financial statements. Accounting gives a more detailed picture but is more demanding.
Who must keep accounting in Czechia?
Always all legal persons, that is s.r.o. companies and other corporations. A sole trader must keep it if their turnover for the previous year exceeded CZK 25 million, if they are entered in the commercial register, if a special regulation requires it, or if they choose to voluntarily.
What happens when a sole trader exceeds a turnover of CZK 25 million?
They become an accounting unit from 1 January of the following year and actually keep accounting from the next accounting period. Once keeping accounting, they must stay in it for at least five years before returning to tax records.