When you first start running a business, it can be easy to forget the admin side of things, especially in terms of what financial records you need to keep. But, as we mentioned in a previous blog, the sooner you put a system in place for keeping track of everything, the easier it becomes.
As for the financial records you need to be keeping, the simple answer is anything that shows money coming into the business and anything that shows money going out. And if you run a limited company, there are a number of other records you need to keep as well.
So, let’s take a closer look at what those financial records are.
Records of business income
You need to ensure you keep anything that relates to money coming into your business. This includes:
- Invoices: keeping a copy of any invoices you send out helps you to easily keep track of who has and hasn’t paid and will feed into your tax returns. You also need to keep copies of all contracts, sales books, and, if you run a retail business, all till rolls.
- Grants: keep a record of any money you receive such as payments from the coronavirus support schemes
- Paying-in slips: if you do make any deposits in person at your bank make sure you keep a copy of any paying-in slips.
- Records of personal payments: anything you pay for out of your personal account, such as buying equipment on your personal credit card, needs to be recorded
- Personal income: whether you’re a sole trader or run a limited company, you will need to keep a record of any income you get from other sources, such as property or investments, as this will affect the amount of tax you have to pay.
- Sales of assets: keep records of any assets you sell, such as capital equipment
Records of business expenditure
You also need to keep records of any money you spend, including:
- Receipts for goods, services and sale of assets: including petty cash books, orders and delivery notes.
- Proof of payments: as well as the receipts, always keep payment confirmations and chequebook stubs.
- Receipts for business expenses: keep copies of receipts for any business expenses you incur while out and about, such as parking or train fares.
- Mileage claims: if you claim mileage for business trips, keep a record of every journey. This needs to include the date, purpose of trip, destination, and number of miles.
- Any amounts you take out of the business for personal use: this could be in the form of cash or stock.
General financial records
As well as the above you should also be keeping the following:
- Bank statements
- Credit card statements
- Previous tax returns
- VAT records
- PAYE and National Insurance contributions and payroll
Records you also need to keep if you run a limited company
And, if you run a limited company or partnership, you will also need to keep a record of:
- Assets owned by the company
- Debts the company owes
- Debts the company is owed
- Any stock you own at the end of the financial year, along with a guide on how you worked out your stock figure.
- All goods you bought or sold and who you bought and sold them to and from unless you run a retail business.
Why and how long do you have to keep financial records?
Before you think it doesn’t really matter if you keep financial records or not, it is a legal requirement, so if you don’t keep accounting records you can be fined £3,000 or, if you run a limited company, disqualified as a company director. And remember, keeping these records isn’t about making your life difficult, but rather making sure your tax bills are as accurate as possible. Without keeping your records up to date, you could end up paying substantially more in tax, and nobody wants that.
Legally, limited companies must keep all financial records for 6 years from the end of the last company financial year and sole traders a minimum of 5 years.
And if your records are lost, stolen or even destroyed, you must do your best to recreate them or provide estimated figures, and let HMRC know as soon as possible.
We’re here to help
Whilst the above might seem like a lot, Making Tax Digital is helping make things a lot easier by taking everything online. Just think no more shoeboxes crammed full of receipts!
And remember whether you need advice on how to record everything, filing deadlines or the best accountancy software to use, we are always here to help.
