Whenever the subject of accounts and record keeping crops up in this column, it tends to result in a bit of a yawn in some quarters. After all, everyone produces accounts in some form already, don’t they? It’s one thing to have ’accounts’ and we can’t imagine anyone in forecourt retailing today operating without regular management information from those accounts but quite often retailers tend to believe that once someone’s produced those accounts the old paperwork is finished with and it’s time to move onto the next period. But just be careful before you consign any documents to that little round filing system in the corner of your office.
HMRC to clamp down on poor financial records
According to the independent Forum of Private Business, HMRC is planning to clamp down on businesses where they believe that ’significant record-keeping failures’ are contributing to late and/or underpaid tax. This renewed attention to paperwork is believed to be coming in the next few months, and those businesses where the basic records are considered insufficient could face fines of up to £3,000 even before any additional tax is calculated.
That doesn’t just mean ’accounts’
As we hinted above, some business operators take the view that once they’ve passed their cardboard box full of odd bits of paper to their accountant, and received in return a much tidier box with a set of accounts some time later, that’s all there is to it. Unfortunately that’s not quite the end of the story. The accounts you receive back are only as reliable as the paperwork you provided. If you receive a visit from anyone at HMRC they will want to look at those underlying documents to ’prove’ the accounts in other words they’ll try to follow what’s called an ’audit trail’ back from the finished accounts all the way to your original purchase invoices and cheque payments, for example. If you’ve managed to lose any of the paperwork, the trail is incomplete and you’ll be responsible for proving that your accounts are accurate. And it’s extremely unlikely that your accountant will have made copies of anything other than major contracts, lease agreements or items relating to the very largest/most unusual transactions it’s just not practical for them to do so.
So what do you need to keep?
The basic answer is ’everything’. Purchase invoices, petty cash vouchers, sales records (we’d actually go so far as recommending that you keep your POS sales print-outs, the ’monthly Z’ should be enough), bank statements and cheque book stubs and, of course, your payroll records. Add to that any new contracts, lease agreements and correspondence with HMRC relevant to that particular accounting period.
And keep all this for how long?
The really safe answer is ’for as long as you’re in business and then add about 10 years after you finish’! Now that may not be the answer you really want to hear, and there is a second-best answer that should still keep you safe. All sales, purchase and payroll paperwork should be kept safe for six years from the end of the financial ’year’ to which they relate. Bank statements and chequebook stubs are better kept for 10 years. So if you had accounts produced to say, December 31, 2005, you should still be able to locate the underlying paperwork for them at least up to the end of this year.
The paperless office
Not entirely paperless, but certainly some business operators are quite happy to point out that while they keep purchase and expense invoices on file, all the sales records are kept electronically, either on the POS or Back-Office System. Likewise they don’t have paper bank statements any more, since they bank online. Stop there. Have you changed either POS or BOS in the past six years? Are you likely to change either in the next six? Have you suffered any equipment ’crash’ in recent years, and if so, had you made a back-up beforehand so that all historic data could be recovered? Leaving back-ups and system integrity aside for a minute, consider the pace of technological change in the IT world. Today most data is backed up onto optical media such as CD-Rom or DVD-Rom. The only safe option is to periodically print out your data and keep it with the other paperwork. Incidentally, using memory sticks for permanent storage isn’t considered very safe practice. They’re easy enough to lose plus there’s the very real possibility of magnetic or electrostatic interference corrupting or completely wiping the data.
Online bank statements
While there isn’t a definitive requirement to keep bank statements for longer than six years, most prudent advice is to keep these for at least 10 years. Today many businesses use online banking and often this means that they’ve stopped receiving regular paper statements. And yet we keep coming back to the fact that if your business is subject to any kind of accounting or tax review by the authorities, one of the first and most important documents they’ll ask to see are your bank statements.
Rather like the technology issues above, consider: have you changed banks in the past few years, or are you likely to change in the future? If so, how will you access historic bank statements if you’re no longer a customer? How much will your ex-bank charge for producing statements and how long will it take? There’s nothing to stop you printing off your own statements on a weekly or monthly basis, but just be aware that some financial institutions don’t accept self-printed bank statements.
Keeping paperwork may be the least exciting subject in business, but a few common sense day-to-day routines implemented now may save you (and your accountant) a big headache tomorrow.