If I carried out a survey of questions asked by my clients, one of the most popular would be “What do I need to keep?”
The most straight forward answer is simple: “Keep details of everything that you spend or receive to do with your business”, but even if you do that what form should those records take and what happens if nobody gives you a piece of paper?
It is easy to keep hold of records if they come in paper form and they can be organised in a number of ways, but probably easiest to find if kept in date order, at least for smaller businesses, perhaps with some reference to the payment date and method to help with finding details at a later date.
But what about if you buy or sell something on-line when you don’t have a paper trail to follow? You could always turn your electronic record into paper by printing it, but it is just as easy and acceptable to keep the record in an electronic file and in fact you could do that with your paper records too, HMRC are quite happy for you to keep electronic copies of your invoices as long as they are readily accessible and readable. Also remember that you need a system for keeping your electronic copies so that they can be found easily when the need arises just as you would with paper.
There is software that can help you with organising your invoices and it can even put information off the invoices into your bookkeeping software!
So what if there is no invoice at all, perhaps because of a cash transaction? In that situation, make sure that you record exactly what happened at the time of the transaction or as soon after as possible, write down what was bought or sold, how much for and when, and sign and date it. If you have that sort of record and HMRC query the transaction it will be far harder for them to argue that things aren’t as you have written down.
Similarly, if you do pay money into an account that doesn’t come from your business, then record what it was about at the time it happened, it is much easier to demonstrate to HMRC that you did win £1,000 by backing the Grand National winner if you record details about it when it happened rather than try and remember 5 years later when you have an enquiry.
Finally, how long should you keep things for? Basically at least 6 years after the end of the tax year that they relate to and longer if possible or you are concerned and if you have bought something and still have it, perhaps land or an antique desk or something like that, then it is sensible to keep the records until you come to sell.
The golden rule is if in doubt hang on to it. It isn’t a competition to see how little you can keep but an exercise in making sure that you keep all that you need to demonstrate to someone who doesn’t know your business (perhaps a tax inspector) that you have kept records that show what you have done.
For further information on any of the above, please do not hesitate to contact me.
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