Keeping good books and records is an essential skill if you are running your own business. It makes it easier for you to keep track of your income and expenditure, and thus how well your business is doing. It also simplifies matters in the event of an HMRC investigation, as well as making life easier for your accountant in preparing your yearly figures. As a rule, the better your books and records, the less time it costs your accountant, which would hopefully mean a lower bill for you. Everyone wins!
The days of clients turning up to their accountant’s office with bin-bags full of receipts are (mostly) behind us. But what kind of books and records should you keep? The answer depends on exactly what kind of business you run.
Self-employed or Partnership
If self-employed or involved in a partnership, you’ll need to keep, at a minimum, the following books and records:
- details of your sales and income
- details of all business expenses
- if VAT-registered, records of the VAT you have charged to customers, or paid to suppliers
- if you employ others, details of PAYE and wages payments, or CIS records if you use sub-contractors.
Self-employed people often do not have a dedicated bank account, using their personal account for both their business and private affairs. In cases like this it is essential to be able to differentiate between business income and expenses, and personal transactions. That way you won’t find yourself paying more tax than you need to, or ending up with a misleading impression of your business’s profitability.
It’s also useful to keep a record of income that you have invoiced for but not received yet (debtors), as well as money that you owe others (creditors).
Link for reference: Self-employed/partnership
Limited company
As a starting point you will need to keep all of the above books and records. When trading as a limited company you should have a dedicated bank account for that company. Only business transactions should go through that account. Private transactions have to be adjusted for by your accountant. You could find yourself having to pay additional tax if you put too many personal transactions through your limited company bank account.
You will also need to keep details of:
- any assets (such as vehicles, plant and machinery)
- the value of any stock held by the company
Running a limited company also has its own statutory requirements. You will need to have records of:
- all directors, shareholders and your company secretary (if applicable)
- records of any purchase or sale of shares in your company
- any “people with significant control” (PSC). This is anyone with more than 25% shares or voting rights in your company, and/or can appoint and remove a majority of directors, and/or could “influence” your company.
A record of any changes in directors, shareholders etc needs to be filed annually with Companies House. This is called a Confirmation Statement. Your accountants will be happy to prepare and file that on your behalf if you wish.
Keeping good-quality books and records can seem a daunting prospect, particularly if you have a business with a lot of transactions. There are various software packages on the market that can assist you with this. Your accountants would be able to discuss this with you and help you work out what package is appropriate for your needs.
Link for reference: Limited company
If you wish to speak to a member of our team, please contact us.