What you need to know about keeping your company records.
Posted on 26th July 2024
Friday's Fortnightly Tax Tip
Are you aware that HMRC expect businesses to keep their records for 7 years?
HMRC do not specify how a business must keep its records, unless the business has to comply with the new Making Tax Digital Strategy.
HMRC’s plans are to digitalise the tax system by introducing Making Tax Digital. It hopes to:
• Make it easier for individuals and businesses to get their tax right
• Mean customers can integrate tax management with a range of business processes through software
• Contribute to wider productivity gains for businesses by encouraging digitalisation
They also believe it will help reduce the amount of tax lost to avoidable errors due to the:
• Improved accuracy of digital records
• Additional help built into many software products
• Digital records being sent directly to HMRC
Making Tax Digital has been introduced to VAT Registered businesses, and HMRC are hoping to roll out this new system to the income tax system soon.
For VAT registered businesses, you are required to utilise the Making Tax Digital system, unless a business is exempt or has applied for exemption. This means a business must comply with the new rules, and all business records must be kept digitally.
This means that all forms of paperwork, like an invoice, must be kept digitally, on a computerised system. This is so they are digitally accessible.
However, if you do not have to comply with Making Tax Digital yet, you are still allowed to choose whether you keep your records digitally or physically.
As mentioned above, you must keep your records for at least 7 years, so it may be advisable to keep these records digitally to save physical space. These files must be accessible to HMRC, if required, and this should include all of your businesses bookkeeping records. For example, records for all sales and purchases, bank and credit card transactions, and even your mileage log and workings, for allowable business trips. (This list is not exhaustive).
In certain cases, you may need to keep your records longer than 7 years, for example, where the business has purchased an item with a life expectancy of more than 7 years, for example for equipment or machinery.
Additionally, if HMRC has started a compliance check into your Companies Tax Returns, it would be very beneficial to keep hold of your records for longer, to ensure you have as much information to hand as possible.
Please note, if your records are lost, stolen or destroyed, and you cannot replace them, you must:
• Tell your Corporation Tax office straight away;
• Do you best to recreate them;
• Include this information in your Company Tax Return
Companies House and HMRC are increasing their penalties regime where businesses and taxpayers do not follow the above rules, so it is imperative that you do your upmost to keep your business records in the correct way.
For more guidance call the team at Holmes Accountancy on 01908 315716 or contact us here.
The tax tip is provided for general guidance only; further advice should be sought, for specific issues.
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