If you run your own business, an important thing you need to do is keep records. The reason to keep records is so that you have evidence of your business activities. This is mainly for money coming into your business through sales and money that your business has paid out through expenses.
What happens if I don’t keep records?
HM Revenue and Customs (HMRC) can look into your business at any time to make sure that the information you are entering on your tax return is accurate. If you are unable to prove the figures you use then HMRC could impose a penalty if they believe you are underpaying your tax.
How long must I keep records for?
You need to keep these records for at least five years and ten months from when your tax return is due, (usually the 31st of January). For simplicity, most people round this figure up to six years.
Different methods of record keeping
There are three current methods for record keeping, traditional accounting also known as accruals basis, is the usual method for record keeping. From the 2013 to 2014 tax year onwards, two alternative methods called simplified expenses and cash basis have been introduced. For this blog we will look at the traditional accounting and the other two methods will be covered in future blogs.
What you need to keep records of for traditional accounting
The records you need to keep include invoices ad receipts for all of the income and expenses of your business.
In addition to the above you need to keep records of any assets your company owns, such as vehicles and equipment, as well as bank accounts and amounts owed to your business by customers. You also need to have evidence of amounts your business owes to others, known as liabilities.
These are required at the end of your tax year so your return can take into account any money you are owed but haven’t been paid yet or money that you are going to pay but has not been paid out yet.
If you are filling out a personal income tax return you will also have to keep records of any other personal income you have, such as employee p60’s or interest certificates for savings accounts.
Records to keep in terms of business assets
The way you need to keep records for business assets depends on whether the business owns the asset or is renting (or leasing) the asset.
If your business leases the asset then you just need to keep the leasing agreement along with a record of all payments you make to lease the asset.
If the asset is owned by the business then you need to keep records concerning the purchase price of the asset and value of any assets sold or disposed of. If the asset is a vehicle such as a car or van you will need to keep a record of its CO2 emissions. You should also keep a record of any private use for business assets.
If you claim capital allowances, you need to record how much you claim each year and the remaining balance available to claim.
Working from home
If you work from home you need to keep records of expenses that are only incurred from working at home, often a calculation for a portion of invoices such as telephone or electricity.
If you would like any advice or assistance on the above, or if you would like to take advantage of our bookkeeping services, please do not hesitate to contact us.
