Set up a basic record-keeping system
What should my record-keeping system include?
There are six basic sets of financial records that should help you run a tight business:
- the cash sales book
- the cash purchases book
- the cash book summary
- the sales ledger
- the purchase ledger
- the wages book (only needed if you employ staff)
How long you need to keep your records
The law states that all business owners must maintain financial records and retain them as a general rule for a minimum of six years. However, if you are:
- an employer, you need to keep Pay As You Earn (PAYE) records for three years (in addition to your current year)
- a contractor in the Construction Industry Scheme (CIS), you need to keep your CIS records for three years (in addition to your current year)
- keeping records to complete a personal (non-business) tax return, you only need to keep them for 22 months from the end of the tax year to which they relate
What should my record-keeping include?
Although the level of record keeping required may vary from business to business, it should include:
- all receipts and expenditure
- all goods purchased or sold
There are no rules about the format you must use to record your figures - those kept on paper are just as valid as those stored on computer.
What's important is that you keep accurate, relevant financial records and update them on a regular basis. You may incur a penalty if you're unable to back up the statements made in your income tax or VAT (if it applies to your business) returns.
Small businesses that are above the VAT threshold may be able to take advantage of the simplified record-keeping requirements afforded by the VAT Flat Rate Scheme.