I’ve been working through quite a few piles of receipts and excel files over the last few weeks to get people’s self assessment tax returns done. Its really made me stop and think again about what count as“adequate business and accounting records”.
HM Revenue & Customs require all businesses, whether sole trader, partnership, or limited company, to keep and retain “adequate business and accounting records”. Even if it wasn’t an HMRC requirement, it would still be a sensible thing to do – you can’t run your business effectively if you don’t know how much money you have made, how much you have spent, and what you’ve spent it on.
At an absolute minimum you have to keep the following:
- Bank statements
- Credit card statements
- PayPal statements
- Cheque book stubs
- Purchase invoices and receipts
- Sales invoices
- Contracts and agreements
And you have to keep them for at least 5 years after the 31 January submission deadline of the relevant tax year.
You can scan them and store them electronically if you prefer (although there are a handful of documents which you should keep as hard copy – e.g. P60s), which could save you a lot of filing space and stop you from losing data due to faded receipts.
If you are VAT registered there are additional requirements that you have to comply with.
It also makes sense to maintain some basic accounting records, unless you want to pay an accountant or a bookkeeper to do it for you. Even if you are simply writing down a list of your transactions in a book, or in an excel file, it will help you to understand your financial position. Ideally you also want to have lists of who owes you money so you can chase late payment, who you owe money to so you don’t get into difficulties from paying invoices late, and what stock you have available to sell.
The next step would be to set up some sort of accounting software. There are many packages out there that you can use, from very basic free packages which are great if you have a very simple business, to incredibly expensive all singing all dancing packages that can integrate things from stock control to payroll to …..
You may also want to consider online accounting software which you would usually pay for monthly, avoiding a big up front cash payment, and which you can access from anywhere – so no excuse for not staying on top of your books!!
So next year, don’t find you are wading through an incomplete set of records and paying more tax than you should be because you don’t know what expenses you can offset. Get organised now!