Record-keeping by Amy Taylor, BSc (Hons), ACA (aka @amyaccountant)

So you have just started up in business. Do you need to go out and buy an enormous filing cabinet to keep all the mountain of paperwork you are likely to be inundated with? Not necessarily.

HMRC guidance stipulates that you should keep your financial records for 6 years in case they ever come to investigate your tax return. In such circumstances, they would want to see the original records that went into the figures on your tax return. If you do not keep the records for the amount of time stipulated, you may have to pay a penalty.

You must keep the original documents for anything showing tax deductions, for example P60s, and bank statements, but for most other records you can keep them filed electronically, as long as they are legible and show all the information on the front and back of the documents. Such electronic files can be stored on CD, memory stick or any other suitable storage device. Thus removing the need for that enormous filing cabinet.

Examples of the types of records you need to keep to prove your income are items such as sales invoices, till rolls and paying-in slips. For expenditure, you should retain records such as receipts, purchase invoices and cheque book stubs.

If you are VAT registered you must also keep a VAT account, showing how you calculated the VAT due to or from HMRC, as well as VAT sales and purchase invoices and import and export documentation. If you are a limited company, you will also need to be able to show accounting records proving your assets and liabilities, as well as your income and expenditure. Your accountant will be able to help you with this.

There are further requirements for record-keeping if you are an employer, and these include all PAYE records, including employee benefits and statutory payments made.

Best practice is to reference every accounting record you keep to the relevant book of entry, so for example, your first item of expenditure for the year might be numbered 001, and you would then include this reference in the line of entry into your cash book and write it on the receipt itself. File each record numerically in a lever arch file or clear plastic wallet for smaller items so that they are easy to find in case of any query by suppliers or customers, or investigation by HMRC.

The HMRC penalty regime asks that taxpayers take reasonable care over their tax affairs, and in the event that you have made an error on your tax return, a clear filing system and helpful attitude to the investigators reduces the risk of a penalty.

If you would like any advice in this area or any other areas of accounting or tax, please contact me on 01767 260282 or, 

Follow Amy on Twitter @amyaccountant.

Amy Taylor Accountancy takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Amy Taylor Accountancy

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