How to Manage the Accounting Records for Your Business?

Why you need to keep accounting records

All business enterprises that are operating in the United Kingdom must keep precise and accurate accounting records. Accounting records are a crucial part of the tax return for your business. Although not all of your accounting records are required to be submitted as part of your tax return, His Majesty’s Revenue and Customs service (HMRC) can legally demand to view the entire set of records at any time they wish. 

Failure to maintain or provide accurate accounting records can result in significant fines from HMRC. In fact, a business can be charged up to £3,000 per tax year for not keeping their accounting records up-to-date or not keeping them for a long enough period of time. 

It is not just the legal and financial drawbacks of not keeping up-to-date accounting records that make them important for a business. Without proper accounting records, it will be much harder to gauge how well your business is doing and what areas you may need to focus on. 

What accounting records do you need to keep?

The types of accounting records that you will need to keep depend on how you have structured your business. The requirements for sole traders are not as involved as the requirements for companies or limited liability partnerships. 

Some business owners or management personnel may prefer to handle the responsibilities of maintaining their accounting records themselves, often by using dedicated accounting software. Others may decide to have an in-house bookkeeper or a third party such as a professional business accountant maintain the accounting records for them. Accounting records must be kept either in paper form or in digital form by scanning or uploading relevant documentation. 

It should be noted, however, that whether you decide to maintain the accounting records yourself or have an accountant take care of them, ultimately the legal responsibility lies with the company directors, the partners, or with the sole trader themselves. 

Accounting records required to be kept by a sole trader

As self-employed people, sole traders are not under as complex a burden when it comes to keeping and maintaining their accounting records. This does not mean that a sole trader does not have to keep records. Accounting records can be kept in digital or paper form and must be completely separated from your personal financial records. 

The complexity of the accounts that need to be recorded is dependent on the size and scale of your business. Larger businesses will have more complex records, while a smaller operation will, of course, require less record keeping. In general, however, a sole trader should maintain the following:

• Records of all sales and income generated by the business. This includes invoices, sales slips, bank statements, and the like
• Records of all business expenses incurred by the business during the financial year or accounting period. If these amounts are small, it may suffice to simply keep invoices and receipts
• Records of all purchases that have been made and assets that have been acquired by the business
• Records of all funds taken from the business bank account that was used for personal reasons
• Records of all monies paid into the business accounts that came from your personal accounts
• Records of all mileage allowance claims, including the date of the journey, the number of miles travelled, the destination and the business reason for the trip
• If you are registered, then precise Value Added Tax (VAT) records
• If you have employees, precise Pay As You Earn (PAYE) records

Accounting records required to be kept by a company or limited liability partnership

There are some additional records that are required by law to be kept by the director of a limited company or the partners in a limited liability partnership. The records for a company or a limited liability partnership should include:

• The income generated by the company or partnership
• All expenditures made by the company or partnership
• Documentation related to income and expenditures, such as bank statements, invoices, contracts, receipts, grants and so on
• A complete list of all fixed and current assets owned by the company or partnership
• All liabilities or debts held by the company or partnership
• Details of all stock owned by the company 
• The stocktakings used to calculate the total stock figure
• Details of all goods that were bought or sold and details on who they were purchased from or sold to (retailers are an exception to this requirement)
• All financial records required to prepare annual accounts and tax returns. Invoices, bank statements, till rolls, sales books, petty cash books, orders, delivery notes and receipts must be kept

When a company or partnership prepares its annual accounts, it will need to have a balance sheet, a profit and loss statement and notes that have been made on the accounts. Other records relating to the financials of the company or partnership should also be kept. These include details of any loans, information on the directors and partners, share transactions, accounting journals, a general ledger with subledgers and so on. 

It should be noted that in addition to financial penalties, a company director can be disqualified from their position by HMRC if accounting records are not kept correctly or for a long enough period of time. 

How long do you need to keep your accounting records?

Sole traders must, by law, keep their accounting records for at least five years after the 31^st January tax deadline of the tax year.

An act of the UK parliament requires that limited companies and limited liability partnerships also keep their accounting records for six years as of the end of the financial year. In practice, this means that the records must be kept for seven years in total. The records may have to be kept for a longer period if:

• An asset has been acquired that may last longer than six years
• The tax return was submitted late
• A transaction was made that covered more than one accounting period
• HMRC is conducting a compliance check

Companies House assumes that all records are kept at the registered office address of the company or partnership. Important documents and key contracts should be kept for longer than the minimum statutory periods. 

Where to find help with your accounting records

Entrepreneurs and business owners sometimes require specialised assistance in managing their accounts, especially if they operate a large enterprise. Specialised business consultants and accountants can provide advice and services that can help to optimise and streamline account keeping processes.

Mooncard offers businesses an easy way to monitor their expenditures. With the Mooncard payment system, you can keep precise digital records of all transactions made on behalf of your business. It’s simple, easy, fast and accurate! If you would like to arrange a free, no-obligation demonstration of the Mooncard system, just get in touch with our team today!