Record-keeping is one of
the most important factors in determining whether a small business will be
successful. Record-keeping enables small business managers to stay organized
and track their profits and losses. Effective record-keeping also ensures that
small businesses comply with various tax laws and regulations. For small
businesses to keep their documentation effective, it is important to develop an
organizational structure that helps them organize their documents as
efficiently as possible. For small businesses to maintain effective
documentation, they need document retention policies. This blog explores which
financial records a small business should keep.
Why keep business records?
It can be viewed as a
tedious process, but it is important for ensuring proper monitoring of cash
going in and out of your business. Properly organized accounting records will
make the process easy once you begin filing your tax return at the end of the
year.
In addition to the fact
that maintaining business records is mandatory by law, you will be expected to
keep them for some time in case of a tax audit or inspection by the relevant tax authority. In
the event that you fail to keep good records, you could be charged.
Records For Sole Traders and
Partnerships
A self-employed sole trader
or a partner in a partnership will be required to keep accounting records of
their business income and expenses. Records of other sources of income are also
necessary for filing the tax return.
Business income
Invoices and supporting
documents will need to be recorded, including bank statements and sales. This
could include paper documents or digital records stored on your computer or in
cloud-based accounting systems.
To stay compliant, every invoice should include a unique identification number, an
issue date, and the addresses and names of the business and the recipient of
the services. Additionally, each invoice should include a detailed description
of the transaction, the date services were provided, the amount charged, and the
due date.
For a VAT-registered
business, invoices should also include the amount of VAT payable, your VAT
registration number, and the VAT rate applicable to each transaction.
Expenditure of your
business
Your business will require you
to maintain receipts for your expenditures. Paper receipts or, in most
instances, copies thereof, could be used provided they contain all relevant
information. Records of capital asset purchases should also be maintained.
Additional Business Records
If your business is VAT-registered,
there are additional records you will need to retain. If your business is
employing anyone else apart from yourself, you will have to retain payroll
records. Additionally, retain records of any government grants, subsidies, or relief funds your busienss has received, as they may need to reported for tax purposes.
Personal Income
As you will need to retain
information on any income other than the one generated by your business in
order to fill out your personal tax return, you will be required to keep
personal pay and tax records. For more information, get in touch with
AccureCFO.
Company Records
If your business is a
limited company, the procedure for retaining documents is different. In
addition to having to retain certain company-specific information, you will be
required to retain accounting records as well. Small business financial records
must be kept in documentation.
Conclusion: How long to
keep your business records
A sole proprietorship or partnership firm should retain its business records for a minimum of 5 years after the tax return for the relevant tax year is submitted, until the deadline. In limited companies, all documents must be retained for 6 years after the end of the company's accounting period.
