Set up a basic record-keeping system

Introduction 

Whatever kind of business you run, you are required by law to keep financial records relating to it.

There are a number of business benefits to be gained from keeping accurate and up-to-date records. It saves you time, and therefore money, whenever you need to produce financial reports. You can be confident that you’re only paying the tax you owe. It also helps you keep up to date with how much you owe to suppliers and how much you are owed by customers.

This guide shows you how to meet your legal obligations and set up a basic system that works for you.

What should my system include?

There are six basic sets of financial records that should help you run a tight business:

  • the cash sales book
  • the cash purchases book
  • the cash book summary
  • the sales ledger
  • the purchase ledger
  • the wages book (only needed if you employ staff)

See the other pages in this guide for more information.

The law states that all business owners must maintain financial records and retain them as a general rule for a minimum of six years. However, if you are:

  • an employer, you need to keep Pay As You Earn (PAYE) records for three years (in addition to your current year)
  • a contractor in the Construction Industry Scheme (CIS), you need to keep your CIS records for three years (in addition to your current year)
  • 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

Although the level of record keeping required may vary from business to business, it should include:

  • all receipts and expenditure
  • all goods purchased or sold

There are no rules about the format you must use to record your figures – those kept on paper are just as valid as those stored on computer.

What’s important is that you keep accurate, relevant financial records and update them on a regular basis. You may incur a penalty if you’re unable to back up the statements made in your income tax or VAT (if it applies to your business) returns.

Small businesses that are above the VAT threshold may be able to take advantage of the simplified record-keeping requirements afforded by the VAT Flat Rate Scheme.

Read more: nibusinessinfo.co.uk