Record Keeping | Why It’s Essential for Your Business

Jun 9, 2022

Whether you’re self-employed or running a large company, good record keeping is vital. This is often a legal requirement, but the benefits go beyond simple compliance with the law.

In this blog, we’ll set out the main records you need to keep, the advantages of good record keeping, and some tips on how to improve your system.

Self-employed business records

If you’re a sole trader or a partner in a business partnership, you must keep records of all business income and expenses. This will allow you to complete your annual tax return accurately.

The main records that you need to keep are:

  • details of all sales and income for the year
  • details of all business expenses
  • VAT records if you are registered for VAT
  • PAYE records for any employees you have
  • details of stock at the end of your accounting year
  • details of any grants you have received.

Many of these records will be electronic, but you can also keep physical proof such as receipts, bank statements and paper invoices – although these can be scanned. You do not need to send these records to HMRC unless you are asked to do so, but you should keep them for five years after the submission deadline for your tax return.

If your turnover is below £150,000, you can choose either ‘traditional’ accounting or cash basis accounting.

‘Traditional’ or ‘accruals’ accounting means that you calculate income and expenses based on the date that you sent an invoice or the date on your supplier’s bill. Cash basis accounting, on the other hand, means that you record money once it has been physically sent or received.

Limited company business records

The record keeping requirements are stricter for limited companies. As well as detailed financial records, as detailed above, you also need to store information about the company itself. This includes:

  • details of company shareholders
  • results of shareholder votes
  • details of loans and mortgages secured against company assets
  • a register of people with significant control of the company, e.g., major shareholders and those with influence over company decisions
  • all money spent and received (including grants and coronavirus support)
  • details of company assets
  • details of company debt either owed or owing
  • stock owned as of the end of the company year and the stocktakings used to calculate this*
  • all the goods sold and purchased, and, if you are not a retail business, who you bought them from or sold them to.

Limited companies must keep records for at least six years from the end of the relevant accounting period. You have an obligation to file accounts with Companies House as well as HMRC. Failing to keep accurate records can lead to a fine of up to £3,000.

What are the advantages of good record keeping?

Having a good record keeping system in place can save you a lot of time and money in the long run.

For instance, well-organised records make your office more efficient. Employees won’t have to waste time searching for information, leaving them free to focus on other tasks.

You are also less likely to make a mistake on your tax returns if your records are well kept, which reduces the risk of an HMRC investigation.

Having access to detailed records will make it easier to argue your case if you are taxed incorrectly.

Records also give you a window into the inner workings of your business, helping you understand what is profitable and what is loss-making and responding to this.

How can I improve my record keeping?

There are a number of simple steps that you can take to raise the standard of your record keeping:

First, make sure that everyone who needs to understands your record keeping system and is following the same procedures. You may want to offer a training session to ensure that everyone is on the same page

Second, talk to your employees about the current system and ask them to suggest improvements – they may have noticed inefficiencies that you missed.

Also consider investing in automated accounting software, which will make it easier to categorise records, and to locate them at a later date.

Finally, bring in an external bookkeeper to clean up your records. A fresh pair of eyes may be able to spot problems that are not obvious from the inside.

Whether you want to tidy up your records or overhaul your system completely, we can help. Give us a call to get started.