Accounting record keeping for small businesses

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Which records should I keep?

Self Employed

If you are self-employed as a Sole trader or within a Partnership, you are expected to keep sufficient records to prepare your personal and/or partnership self-assessment tax return. It is a legal requirement to maintain and keep accurate business records.

You need to record all your business income and expenses that make up the figures in your tax return, as well as any and all supporting evidence such as invoices, receipts, and bank statements. It does not matter whether records are kept electronically or on paper, but if they are stored electronically, it is wise to consider security and backup options. For example, what would you do if you had all your records stored on your laptop hard drive, only for your laptop to break? You might instead consider accounting software, where your records are stored on the cloud.

You will also need to keep records of the value of stock and work in progress, if any, as well as how much you have invested into the business and how much you have withdrawn.

Limited Companies

If you are running a Limited Company, then you need to file company accounts as well as a corporation tax return, so it is highly advisable that you hire an accountant. If you draw income from your limited company, you’ll still likely need to complete a self-assessment tax return as well.

Part of a Limited Company’s accounts is the Balance Sheet – a statement that shows all the company’s assets (including who owes you money) and liabilities (who you owe money to). The company may owe money to HMRC, to suppliers, to banks, or even to yourself, if you have invested more into the company than you have withdrawn. You must keep accurate records for all of these items.

Other business records

If your business runs a payroll scheme, whether you operate as sole trader, partnership, Limited Company, or any other organisation, you must keep records of what you pay your employees and the deductions you make, reports and payments that you make to HMRC, employee leave and absences, tax code notices, taxable expenses or benefits, and payroll giving schemes. Payroll will need to be run through software, and so a lot of these records should be dealt with within your software. Again, it is advisable to seek professional assistance when it comes to your payroll.

If you are VAT registered, you must keep records of the transactions that make up the numbers on your VAT return, as well as the supporting evidence behind them. VAT must now be submitted in line with Making Tax Digital (MTD) legislation, so your records should be kept in software, even if your supporting documents are not.

How long to keep your business records

Limited company accounting records should be kept for a minimum of 6 years from the financial year end that they relate to.

VAT records should also be kept for 6 years.

For sole traders and partnerships, records must be kept for at least 5 years from the 31 January submission deadline of the relevant tax year. For example, the tax year ending on the 5th April 2022 will have a filing deadline of 31st January 2023. You must keep your records until 31st January 2028 for this tax year.

PAYE records must be kept for at least 3 years from the end of the tax year they relate to.

Although it may seem daunting to take the plunge, using accounting software to streamline record-keeping can greatly boost productivity, even for family businesses and SMEs.

Could you benefit from seeking additional advice from an adviser?

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