17 Oct How to Keep Good Financial Records
Keeping good financial records is of vital importance to a business of any size, not just from an accounting point of view but also from a management and business running perspective. As well as being used to assess tax liabilities, accurate financial records can be useful from a management perspective to assess past and current business performance. Here are a few tips on how to improve upon the way you keep records in your business.
1. The Basics: A good record keeping system should include the following:
- A record of all sales takings including cash receipts in for example the form of till rolls or bank statements.
- There should be a record of purchases including cash purchases for example as receipts, purchase invoices or bank and credit card statements.
- If the business is VAT registered there should be a VAT account recording sales and purchase invoices as well as import and export documentation e.g. delivery notes.
- If your business is a limited company then accounting records should include details of assets and liabilities as well as income and expenditure in order to comply with the Companies Act and to work out corporation tax.
- If you are an employer all PAYE records must be kept. Records of deduction of income tax and NICs as well as employee benefits and expenses.
2. Get Organised: It is important to maintain records frequently. Although this may seem like it is taking time out of the running of your business, regular recordings will lead to superior more accurate records. The records will enable you to maintain track of costs, and aid business control by giving you a clearer picture of the businesses position.
3. A Good Filing System: It is important to keep copies of everything that you are recording such as invoices, receipts, statements, supplier statement. A good filing method would be to scan the paper copy and for example if recording a purchase invoice, save into a purchase invoice folder filed as “invoice number – suppler name – amount – date”.
4. Choose Your Record Keeping Method: An Excel cash book will be quick to set up and enter data but the spread sheets limitations are that they are not very flexible and are not resilient to errors unless time is spent to build in checks. The best method is to select software which suits your business needs. Making a software choice need not be an expensive choice (we currently offer Kashflow software for free to all our clients) and whilst it may require a small investment of your time to upload your data correctly, the return is that it helps the records to be significantly more robust and will give you quick access to a range of financial reports.
5. How Long to Keep Your Records:
- If you are an employer, you need to keep Pay As You Earn (PAYE) records for 3 years (addition to your current year)
- VAT – 6 years
- Corporation Tax – 6 years from the end of your Corporation Tax accounting period.
- Personal Tax (individuals and directors) – 1 year. If you send in your tax return on or before the normal filing deadline of 31 January, you must usually keep your records for a further year after this deadline. This is extended to 15 months if filed late. If you have other business income then the length of time is extended to 5years (per self-employed rules)
- Partnerships – 5 years after the normal tax return deadline (31 January)
- Self-employed – 5 years after the normal tax return deadline (31 January)
- Capital Gains Tax – 2 years – If you file your 2011-12 tax return by the filing date, you should normally keep your records until 31 January 2014 – or until 31 January 2018 if you’re self-employed or in a partnership.
- Keeping records to complete a personal (non business) tax return, you only need to keep them for 22 months from the end of the tax year to which they relate.
Hence, as a general rule, you should keep your records for six years, unless the expenditure was of a capital nature in which case the records should be kept until disposal of the item.
6. Make Sure to Contain Enough Information in Your Records: It is important that you maintain your records so that anyone can understand them not just yourself. Make sure they are easy to follow as other people within your organisation may need to look at them. For example when you are paying a cheque write the invoice on the cheque stub and the cheque number on the bill so it can be cross examined at a later date.