KEEPING RECORDS
Ref: Keeping records for business – what you need to know
Keeping accurate and up-to-date records is essential to provide you with information about how your business is performing. It also helps when obtaining finance and preparing tax returns. Keeping good records is both healthy for your business and is a legal requirement, so it is important to get a proper system in place from the beginning.
You must update the information regularly - penalties have been introduced for not taking reasonable care with records and tax returns, so you need to keep accurate records. HM Revenue & Customs (HMRC) offers a range of guidance on record keeping to help meet your specific tax needs.
Giving your business the best start with tax (PDF 543K)
Record keeping (companies and organisations)
If your company or organisation is liable for Corporation Tax, you must keep and retain adequate business and accounting records to file an accurate Company Tax Return and calculate how much Corporation Tax you need to pay.
This guide gives an overview of the records that you need to keep for Corporation Tax purposes. It explains how long you normally have to retain them for and when you may have to retain them for longer than usual. It also explains what happens if you don't keep adequate records or retain them for long enough.
Record keeping (partners and partnerships)
As a member of a business partnership, you're taxed on your share of the business profits - so you must keep accurate records. By law, you must keep business records for at least five years from the 31 January following the tax year for which the tax return is made. A penalty of up to £3,000 can be charged for each failure to maintain or retain adequate records to back up a tax return.
You should keep your business and personal records separate - it's a good idea for the partnership to have a separate bank account. It's the responsibility of all the partners to make sure the partnership keeps accurate records. Every partnership must have a nominated partner - one of their jobs is to use the business records to fill in the partnership return.
Record keeping (self-employed)
By law, you must keep business records for at least five years and ten months after the end of the tax year the records relate to. You can be charged up to £3,000 for failure to maintain or retain the records you need to make a tax return.
You'll need to keep your business records and personal records separate. Most businesses find that it helps to have a separate business bank account.
Record keeping (individuals and directors)
If you're a UK taxpayer you should keep a record of the tax you pay each year and other records relating to your income. You'll need these if asked to complete a tax return or if you need to provide information on one you've already completed.
Accounts and Records for your VAT
If you are registered for VAT, you must keep certain business records and VAT records of your sales and purchases. You must also keep a separate summary of your VAT, called a 'VAT account'.
There is no set way of keeping these records and accounts. In most cases, they can be easily adapted from your normal business records. The main thing is to ensure that they are complete and up to date and that it is easy for VAT officers to access them when you have a VAT inspection.
As an employer, you'll usually need to deduct Income Tax and National Insurance contributions (NICs) from your employees' pay and send the amounts you deduct to HMRC each month or quarter. This system is called Pay As You Earn (PAYE).
It's essential to keep accurate PAYE records to ensure that:
- You and your employees are paying the right amount of tax and NICs
- Your employees are getting any statutory pay they're entitled to
- You're complying with legislation like the National Minimum Wage
You'll also need these records so that you can file annual PAYE returns and provide supporting paperwork if asked for by HMRC.
You must keep PAYE records for the current and previous three tax years.
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