To ensure that you pay the correct amount of tax and file correct tax returns with HMRC, it is vital that you keep complete and accurate records. This applies regardless of whether you are running a business as a sole trader or in partnership or operating a limited company.
Business records for the self-employed
The self-employed need to complete records of their business income and expenses. Where the business is operated in partnership, the responsibility of keeping records falls on the nominated partner.
It is important to keep records of:
- all sales and income
- all business expenses
- VAT records if the business is VAT registered
- PAYE if the business has employees
Records are essential to enable the business to work out its profit or less. They may also be needed to support the figures included on the tax return should HMRC ask questions.
Keeping records of expenses ensures that nothing is overlooked and tax relief can be claimed as appropriate. It is, however, important to retain proof of expenses, for example:
- bank statements
- sales invoices
- purchase invoices
- till rolls
- paying-in slips
Where the business is operated as a limited company, records of income and expenses must be kept as for a sole trader. It is important to record income, expenses, debts owed by and to the company, details of goods brought and sold, details of stock and records of stock takes, etc.
Records must also be kept about the company itself, including details:
- directors and shareholders
- minutes of votes and resolutions
- details of any charges on the company’s assets, debentures, indemnities
The company must also keep a register of persons with significant control. Broadly, anyone who has more than 25% of the voting rights, can appoint or remove a majority of directors or can influence or control the company.
How to keep records
With the introduction of Making Tax Digital, the Government’s new cloud-based tax system, businesses will no longer be able to keep records manually.
In certain circumstances, some businesses/charity’s will not be required to keep digital records. Instead, in these circumstances records can be kept on paper, using software packages or on spreadsheets.
How long to keep records
Where a self-assessment tax return is filed before the deadline of 31 January after the end of the tax year to which it relates, records should be kept for at least 22 months of the end of the tax year (12 months from the filing deadline). Where the return is sent late, records should be retained for at least 15 months from the date the return was submitted.
We recommend you keep your records digitally using cloud storage such as Google Drive if you have paper records we offer a digital records service, where we take your paper records, digitally scan them then upload them to a cloud service of your choice or memory stick.
HMRC can charge penalties for the failure to keep accurate records. A company director can be fined £3,000 or disqualified for the failure to keep proper accounting records.
It’s better to be safe than sorry when it comes to business record keeping.
Gold Stag Accounts is lucky enough to be partnered with FreeAgent, Xero and Quickbooks the UK’s leading online accounting software providers.
If you are unsure which system is best for you please get in touch. We are expert advisers and can help you navigate between the different options available. Contact us