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UK tax legislation outlines the obligations on individual taxpayers and businesses (including limited companies), to maintain and keep adequate financial and business records from which to prepare and submit complete and accurate accounts and Tax Returns.
Even the completion of a simple Self Assessment tax return will require reference to financial records of some kind. The preparation and filing of limited company and sole trader accounts is dependent upon the availability of records showing the business activities conducted over a year. Changes to the tax system introduced by HMRC, both in force now and to come over the next couple of years through the Making Tax Digital (MTD) initiative has brought with it requirements to keep effective digital records. Such records will form the basis of electronic quarterly and annual filing of business transactions automatically to HMRC.
As well as the legal requirement for proper record keeping, there are many advantages to both individuals and businesses, including:
It’s required to ensure that tax returns are fully and accurately completed leading to the payment of the correct amount of tax by individuals and businesses. In the event of an investigation into an individual or business, HMRC can ask to see the original records which lie behind the return or accounts. They will be looking to examine the level of business income and the allowability or otherwise of business expenditure or tax claims made by individuals.
This will vary in scale and extent between individuals and businesses. It will include records of sales, invoices, other sources of income, and receipts for business expenditure. In essence all the original documentation used to prepare the returns and/or business accounts. If business mileage is being claimed, it is important to keep either a paper or electronic record of journeys.
Receipts and recording systems can be in paper and/or electronic format (but see the earlier comments about Making Tax Digital and the requirements which come with it). Whichever format or mix of records is used there are time limits for how long they must be kept. Electronic receipts, photos of receipts, spreadsheets and bespoke recording apps will all provide adequate evidence.
Financial information for Self Assessment tax returns should be kept for 4 tax years – this is the usual time limit for making tax claims. Although HMRC may investigate tax years prior to that there is no obligation to keep personal financial records for those earlier years. Sole traders are required to retain their business records for 5 years and limited companies for 6 years.
You won’t need business records as such unless you are a sole trader, in which case you’ll have separate records to calculate your taxable profits. Otherwise as an employee or pensioner, you’ll need documents such as the annual form P60 Certificate of Pay/Pension and Tax deducted; details of any employment benefits you receive which are not included in your monthly pay (shown on a form P11D provided by your employer); statements of your investment income (bank interest statements, dividend statements in relation to any shares you hold).
If you paid for the item using a credit card or a debit card your bank or credit card statements should record the transaction and could be used as corroboration if necessary.
You can do this in several ways - using a paper mileage log, a spreadsheet or a business mileage app of which there are many on the market.
Yes. Failure to keep complete and accurate business records will be seen as your company not taking reasonable care in the conduct of it tax affairs and could lead to a higher penalty.
Yes. You can scan or take photos of the original documents as an alternative to retaining the originals. Make sure that your scans or photos are legible and that the date of the expenditure, amount, nature of the expenditure and supplier details are all visible. If you are reclaiming VAT, ensure the VAT number is clearly identifiable.
That will depend upon your needs. There are simple recording apps and those which consolidate the information and provide profit and loss accounts. We recommend that you speak to your accountant to work out which is best for your business.
Profits from letting property are taxable and you’ll need to keep records of your rents received and the expenditure you’ve incurred. They will form the basis of the calculation you use for the entry in your Self Assessment tax return or the creation of accounts if the property or properties are held in a limited company.
The tax Trading Allowance covers micro businesses providing that the gross annual income is less than £1000. However, you should be keeping proper records to see if/when your income exceeds the £1000 p.a. and you need to include the profits on your Self Assessment tax return.
Sadly no incentives are offered to encourage taxpayers to keep proper business and financial records! They do however provide a list of software which has been registered by them as meeting the MTD criteria of accurate recording and filing for Income Tax.
Here’s a link to the GOV.UK website for more details: https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax
Ensuring that proper records are maintained for your business is an important responsibility, however if you’re currently using any of our accountancy services and you need further guidance or advice please don’t hesitate to contact your dedicated accounts team on 0161 923 0201 (Option 3)
Alternatively, you can call 0161 923 0201 or click below for more information on our range of limited company services.View our Range