Keeping records for your tax returns is so important for both small businesses and the self-employed. If you keep your records for your tax returns in an organised manner then it will be easier for your accountant, us and HMRC.
We always advise any new company to keep on the right track by keeping good records from the beginning.
What records should you keep for your tax returns?
We recommend keeping any records and documents that you have received, or have prepared, that can be used to complete information in your Self-Assessment or Company Tax Return. Most of these records will be from the tax year or your business accounting period to which they relate. In some circumstances, you may need to refer to records that are already several years old, e.g., if you dispose of an asset such as land. We have experience with this as we have a number of agriculture clients. The records needed for this may be used to calculate capital gain or loss.
What happens if you don’t have enough records?
A penalty may be issued by HMRC if you are unable to show them records that you used to complete your return. More information about penalties can be found here.
How long should you keep your records for your tax returns?
HMRC advise individuals to keep their records for 22 months from the end of the tax year to which they relate. If you are self-employed, you should keep your records for at least five years from 31 January following the tax year that the tax return relates to. If you are a company then accounting records need to be kept for six years from the end of that period.
HMRC also advise that if you send in your tax return late then the time limit for keeping records may be extended.
What records should you keep?
The records that you need to keep will really depend on the type of taxes you need to pay and the size/complexity of your business. It is up to you to make sure that your tax return and VAT records are complete on time.
We provide our clients with advice on how to set up a record-keeping system however some already use the system set up by HRMC.
If you would like more advice or help with your record keeping, then please get in touch.