Record Keeping

Date: 09 August 2010

Record Keepinng

Establishing and maintaining good records is an important part of running a limited company and operating as a contractor.

A good record keeping system saves time in the long run as up to date records will help you:

- keep track of your expenses
- ask for a bank loan or credit if you need to
- see what you are owed by others and
- how much you owe them
- pay the correct amount of tax
- receive the correct amount of benefits or tax credits
- avoid paying any extra tax or penalties.

The need to keep records

The law says that you should keep all records and documents you need to support the entries on your tax return. If HMRC need to check your return, they may ask to see the records you used to complete it.

If adequate records are not kept or you do not keep your records for the required period of time, you may have to pay a penalty. If an inaccurate return is submitted a penalty may be due unless you can show that the mistake was made even though reasonable care was taken.

Some of the ways in which you can show you've taken reasonable care include:

- keeping full and accurate records which are regularly updated and saved securely
- checking with HMRC or an agent or accountant if there is something that you don't understand.

How long to keep records

As a general rule, you should keep your records for a minimum of six years.

You may need to keep records for other reasons, as well as tax purposes. For example, the Companies' Act requires limited companies to keep specific records. Such records may need to be retained for different time limits, so be careful not to destroy any records you also use for tax purposes too soon.

How to keep your records

The law does not say how you must keep your records. You must keep some original paper documents which show that tax has been deducted. An example is form P60 (end of year certificate for PAYE). Generally it is recommended that you keep all original documents you receive.  Most other records can be kept electronically.

My Accountant Friend’s user-friendly online system is an excellent way of keeping all your records electronically in one place. They are held securely, backed up every day and are all in one place for easy reference.