Virtually the first question most newcomers to running their own business ask us as their professional advisers is “What paperwork do I need to keep, and for how long?” – followed by a long sigh when we tell them that most of their accounting records need to be kept safe for at least six years, and that some paperwork should never be destroyed. Increasingly we are being asked the same question when site operators want to install computerised accounting systems. The basic requirements are the same, although some details are obviously related to the technology in use at any particular time.
First, the need to keep records: Both the Inland Revenue and Customs & Excise have similar requirements. Quite apart from those people running limited companies, where the record-keeping requirements are specifically laid down by company law (and more onerous than for unincorporated businesses), the general principle is that you need sufficient accounting transaction records to support your VAT and tax returns in the event of any query, and that you need some external source documentation to support those records (eg certificates of interest received and tax deducted from bank or building society accounts, dividend vouchers, etc).
The authorities make it quite clear that if you don’t keep detailed records two things can happen: you run the risk of incurring penalties for failing to maintain proper accounting records (a potential fine of £3,000 for each year that you fail to keep adequate records), and you may well be assessed as owing more tax than you expected (and be charged interest on any overdue tax), since in the event of an enquiry you’ll have some difficulty proving your sales and expenses figures.
Secondly, how do you keep those records? Using a PC-based accounts system is the modern method. OK, but remember that the accounting system should be Revenue and/or Customs approved (most well-known off-the-shelf accounting systems from major suppliers probably are, although ask the supplier before buying other DIY spreadsheet accounting software from the web or from that computer-whizz friend of yours who once studied accounting at college, probably aren’t). Once you have your accounting system installed, how do you keep the records safe? There are now two main ways of doing this.
The old, conventional method is to make regular back-up copies of your records, say, at each month-end, onto a floppy disk or CD-Rom, which can then be held somewhere secure off-site. The Revenue and Customs both tell you that whatever system you use to keep the records, they must be accessible at reasonable times and they must be in a form that can be readily converted back to a legible state. Now look at those floppy disks that you’ve saved for the past six years (in your fire/water-proof, magnetically-shielded safe of course) – any of them the old 5.25” ‘floppies’? Yes, that’s right, the bendy ones. Now, where’s the PC that used to have a 5.25” floppy-drive? In fact, chances are that your new PC doesn’t even have the later 3.5” floppy drive either. Getting the picture? Just because you made and protected your back-ups doesn’t mean that you’ll be able to read them later when the technology changes. For that you need major systems investment and the transcription of archived records from one medium to another.
We mentioned that there were two ways of keeping your computerised accounting records safe. The more advanced and safer one, now incorporated into the latest versions of our own Manager International accounting and stock system, utilises a database synchronisation technique whereby each day when you run a ‘day-end’, your transactions are copied to a master database held at our head-office.
In effect we do a complete daily back-up automatically for you, and our database servers themselves are all hyper-secure, with full off-site back up and alternative ‘disaster-recovery’ facilities should both you and we get struck by that lightning at the same time.
The worst-case scenario is that you’d only ever have to recover the latest day’s transactions if you found your office completely empty one morning. Not only do we keep your records safe for you, but you receive your accounting information more quickly too.