When starting your own business, you are required to meet certain expectations set by HMRC when it comes to record keeping, whether this be as a sole trader, partnership or limited company. These requirements can sometimes be confusing to navigate as they can differ between certain tax affairs, and with the development of new technology/software it can be difficult to understand how you are required to keep these. As a general rule of thumb, it is best practice for business owners to keep all records relating to financial transactions from an accountancy standpoint.
In this blog we will look at the different types of records you’re required to keep, and how using an accountant can help keep you on the straight and narrow when starting your own business.
How am I required to keep my business records?
We’re regularly asked by our clients the best way to keep their business records, and how HMRC expect them to.
Paper form is one option, which can become a very timely chore each month, as well as increasing your business expenses in printing and possibly storage.
You could also keep your records in a digital form, such as an excel spreadsheet or using google docs. Whilst you’re able to back this type of record up and easily share it with your accountant, it’s easy to make mistakes which can add up to bigger problems later on, and any amends you make aren’t instantly visible to your accountant.
Another option to keep your business records is by using cloud-based software, such as FreeAgent, which is one of the safest and most effective methods of record keeping, as your records can then be instantly backed up. It gives your accountant a real-time view of your accounts, so any changes you make will be automatically updated. It also gives you peace of mind, so if the worst were to happen and the system somehow corrupted, there is always a way to retrieve your company’s data. If you decide to use cloud-based software, you’re also no longer required to keep any paper records which will save you both time and space.
Whichever method you decide to use, HMRC have detailed that ‘there are no rules on how you must keep records. You can keep them on paper, digitally or as part of a software program (like book-keeping software).’ HMRC are also working towards their long term environmental goal of becoming paperless, so by using digital record keeping you’ll be helping them towards achieving this! This value may also align with your own personal business values, when starting out.
How long do I need to keep my business records for?
It depends on which tax affairs are relevant to you and your business, as they each have different requirements in regards for how long records must be kept. To keep things simple and ensure you’re meeting all requirements, its best practice to keep all financial records (including completed tax returns and documents) for at least 6 years after the period has ended to which the document in question relates to. These records must be kept by your company’s person of significant control (PSC).
Why do I need to keep these records?
When starting your own business, you’d be forgiven to think that once you’ve submitted your documentation to HMRC, that it is safe, and you no longer need it. Sadly that’s not the case, and as an entity that makes declarations for tax purposes, you’re responsible to maintain your business records, as HMRC has the right to check through any filings or submissions made to them, to ensure they’ve been correctly prepared. To do so they will request supporting documentation from you for any of the accounts or submissions made, so you’ll want to ensure you’ve got it to hand.
FreeAgent can make this process so much easier, as all supporting documentation can be attached directly to your accounts, and make the whole process of locating the required information much smoother and quicker.
What happens if my business records are lost, destroyed or stolen?
Some circumstances which are out of your control can mean that records are unattainable. If you find yourself in this situation and HMRC request information from you, you must:
- Do your best to recreate those accounts
- Inform your Corporation Tax Office as soon as possible
- Include this information in your Company Tax Return
Ensure to also discuss lost records with your accountant, as they may also be able to help.
Keeping records is a must, so it’s really important to ensure you’ve got the right processes and methods in place to keep it all correctly recorded, and kept safe for at least 6 years. If you have any burning questions, or just need clarification, be sure to discuss them with your Client Director, or any other member of the Aardvark team. Not yet an Aardvark client? No problem! Get in touch today to discuss your accounting needs, and see how we can help you.