Keeping accurate business records means you (or your accountant) have the correct information in regards to income, business expenses and more. Keeping good business records will mean you are able to file your tax returns correctly and pay the right amount of tax. You can avoid a last-minute panic when you are filing your tax return by keeping track of all your expenses, receipts and other records throughout the year.
7 reasons why keeping up-to-date records benefits your business
Keeping accurate business records will help you do the following:
- Monitor the progress of your business to see where it is performing well and what changes may need to be made
- Enable you to prepare accurate financial statements and projections
- Remember for any deductible expenses that you can you must keep copies of receipts (electronically) for up to six years
- Keep accurate records to support expenses and income so you can prepare your tax return
- Maximise the expenses you claim and legally reduce your tax liabilities
- Make it easier to distribute profits to shareholders as dividends
- Plan for financial commitments such as paying employees or creditors
What business records should you keep?
Please note – it is very important that you keep your business records and your personal records separate!
Accounting records may vary depending on your business’s size and nature. As a general rule of thumb the following records should be kept:
- All sales and income e.g. invoices and bank statements
- All business expenses and purchases and keep records of the associated invoices and receipts
- Purchases and sales of assets
- VAT records and returns (if the business is VAT registered)
- PAYE/NIC, payroll records and HR records (such as right to work checks) if your business has employees
- If you want to and are able to claim expenses for business trips, you must keep a record of the details of the trip such as date, mileage, destination and purpose of the trip
- All amounts that are taken from the business bank account for your own personal use
- All amounts paid back into the business from your own funds
Business records are key to allowing a business to work out its profit or loss and will ensure you are able to make accurate business forecasts for the future.
How long do I need to keep business records for?
It is recommended that you keep your business records for six years from the end of the last company financial year that they relate to. Or for longer, if they show a transaction that covers more than one company accounting period.
You may also be required to keep your records for longer if the company has purchased something such as a piece of machinery which is expected to last more than six years.
Are there any penalties for keeping inadequate records?
If you don’t retain your records for the required time period, you could be charged a penalty by HMRC. The penalty is up to £3,000 per tax year for failure to keep adequate records and penalties will vary based on the seriousness of the offence.
Penalties are also incurred for failing to keep any records.
How will Making Tax Digital affect how you keep records?
Making Tax Digital (MTD) was introduced to improve the accuracy and efficiency of businesses when storing and submitting tax records. As of April 2019, businesses must have implemented an electronic record keeping system such as an accounting software package, app or spreadsheet-based system to store their business’ VAT records.
Churchill Knight’s systems are already equipped to handle MTD requirements
Churchill Knight & Associates Ltd systems are already equipped to handle MTD requirements; which means all of our clients’ businesses will be compliant with MTD for both VAT and Income Tax.
Additionally, as specialist contractor accountants we can advise you on the best way to handle your company finances. We can also help minimise the administrative burden of running your limited company and offer unlimited support and advice to ensure you maximise your take home pay. For more information give us a call on 01707 871622 or schedule a call back at a time that suits you.