Do you understand the importance of keeping good business records? Do you know what records you should keep, and the consequences of not having the appropriate records? Find out more by reading the article below.
Why do I need to keep business records?
To ensure that you are paying the right amount of tax and are correctly filing your tax returns with HMRC, you must ensure that you keep completed and accurate records. This applies whether you are a sole trader, or in a partnership, or operating a limited company.
Business records for the self-employed
If you are self-employed, you need to complete records of your business income and expenses. If the business is operated in partnership, the responsibility of keeping records falls on the nominated partner.
It is important to keep the following records:
• All sales and income
• All business expenses
• VAT records if the business is VAT registered
• PAYE if the business has employees
You need business records to work out your profit and loss. They are also useful to support figures on your tax return if HMRC ask questions.
It is essential to keep records to ensure nothing is overlooked, and tax relief can be claimed if appropriate.
You must also retain proof of expenses, such as:
• Paying in slips
• Sales invoices
• Till rolls
• Purchase invoices
• Bank statements
If your business is operating as a limited company, you must keep records of income and expenses in the same manner as a sole trader.
You should keep records of:
• Debts owed by and to the company
• Details of stock
• Records of stock takes
You must also keep records about the company itself:
• Directors and shareholders
• Minutes of votes and resolutions
• Details of any charges on the company’s assets, debentures, indemnities.
You must also keep a register of the persons with the most significant control. For example, anyone who has more than 25% of the voting rights and can appoint or remove directors and influence or control the company.
How do I keep records?
Records can be kept manually, but soon it will be a mandatory requirement for many businesses to keep digital records.
Most businesses who are VAT registered and whose turnover is above the VAT registration threshold of £85,000 will have to comply with the requirements of Making Tax Digital for VAT for the first VAT accounting period beginning on or after 1 April 2019.
Once MTD is introduced for income tax and corporation tax, it will be mandatory to keep digital business records for these purposes too.
If there are no mandatory digital record keeping requirements then records can be kept on paper, using software packages or spreadsheets.
How long do I need to keep records?
If a self-assessment tax return is filed before the deadline of 31 January after the end of the tax year to which it is related to, you should keep your records for at least 22 months of the end of the tax year (12 months from the filing deadline).
Company records need to be kept for a minimum of 15 months from the date the return was submitted.
What are the Penalties?
HMRC can fine a company director £3,000 or they can disqualify them if they do not produce accurate accounting records.
Overall, it is important that you ensure you have the appropriate documentation for your business to prevent any penalties, if you need any additional advice then please contact us.
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