Keeping records to support tax or VAT returns is a legal requirement in the UK. To ensure you are paying the correct amount of tax, HMRC will need to see a record of your figures each tax year. Failure to supply accurate records could result in legal action.
Benefits of Good Record Keeping
Keeping track of your finances can help manage business cash flow, allowing the optimisation of your business’s growth, resulting in higher revenue. Records keep the business owner well informed about the financial position of the company.
Maintaining accurate financial records gives you the ability to catch on to any cash flow issues that may arise early on. This early detection allows you to deal with matters promptly and before they increase, causing further complications for you and your business.
If you ever decide to expand or sell your business, you will need a track of your records. Potential buyers will want to see these records to ensure it is a viable purchase that will result in them turning a profit. Similarly, if you need a bank loan, the bank needs to see these records to ensure that you will be able to pay off any investment with interest.
If you have a business that is made up of shareholders, business records are needed to distribute profits or losses based on the agreed terms. If a shareholder owns more than 10% of the business, they may request an audit and inspection of all records.
Accurate record keeping helps you make plans for your business’s future. By tracking inventory, a company can determine the stock needed for the following year and help anticipate busy seasons.
Working in a consumer-based business, you may require business contracts. By keeping these records safe, you can protect both your consumer and you. If problems arise, and you are required to file a lawsuit. e.g. you are not paid, or the client breaks the contractual agreement, a contract can be crucial evidence.
What to Keep
How to Store Records
Thanks to the development of new computer software in previous years, it is now possible for most records to be stored securely on a local disk or the cloud. There are also now apps that allow you to take pictures of your receipts for easy storage. If you decide to scan copies of receipts, it is essential to remember that HMRC requires you to scan or take pictures of both sides of the receipt to ensure authenticity.
You must keep all records for at least 5 years after the 31st January submission deadline of the relevant tax year. HMRC may wish to check your records for previous years. Records such as company financial records, employee records, and fringe benefit records must be kept for 7 years.
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