Starting in Business, Keeping the Right Business Records

Starting in Business, Keeping the Right Business Records Introduction

No matter where you business is based, no matter even the country, it’s vital to keep the right, updated records for your business. If you’re trading online, you may even need to keep different records for the countries in which you are trading.

All businesses, no matter their location, country, or size, must keep certain records and documents to ensure they are operating legally. These records usually include tax, employee and health and safety records.

HMRC Fresh Approach to Business Records Checks

Here in the UK, the HM Revenue and Customs (HMRC) are planning to inspect more small business’ records than ever before. Don’t get caught out, make sure you are complying with their rules. Don’t get caught with a hefty fine for not completing some stupid form or completing the requirements a day late.

• On 3 February 2012 HM Revenue & Customs (HMRC) announced a fresh approach to its Business Records Checks (BRC) programme in 2012, following a review.
• According to HMRC, 39% of businesses have issues with their record keeping.
• Up until 4 January 2012, 2,437 business records checks had been carried out. These found that 39 per cent of businesses had some issue with their record-keeping. This comprised of 28 per cent having some issue with their record keeping and 11 per cent having issues serious enough to warrant a follow up visit.

While record keeping is usually a pain in the rear end (if you find someone who enjoys doing paperwork, treasure them), it’s vital to get into the habit of maintaining good systems and practices early on to avoid problems at a later stage, i.e., during a tax investigation or an employment tribunal.

In a world where electronic records (computer records) rather than paper records have all become the norm, it’s important you keep backups of your system(s) with software such as Acronis True Image and remember to keep important records as paper records rather than just electronic records.

• Every business is required to keep certain documents to comply with the law, whether electronic records or paper records, but not every business owner knows which records are important. Do you know?

Keeping your tax records in good order is especially crucial as HMRC has revamped its ‘Business Records Checks’ to encourage better record-keeping practices, meaning, they want more! “Higher risk” businesses are set to be targeted first, with strict penalties for those who fail to supply adequate records. So, if you don’t want to be paying excessive taxes and/or penalties get your paperwork in order now.

• “In this world nothing can be said to be certain, except death and taxes.”
  Benjamin Franklin (1706-90)

Tax Records

As a business you must keep records of all your receipts and expenditure for tax purposes. The exact records you need to keep will depend on the nature of your business, but the taxman will generally expect you to keep:

• A record of all sales and takings.
• A record of all purchases and expenses.

Depending on your business, you may also be required to keep more or less of the following:

• Cash and Petty cash book.
• Sales and Purchase ledger.
• Wages book.
• Invoices and receipts issued and received.
• Electronic records of sales.
• Till rolls.
• Details of any items not rung through your tills.
• Incidental income such as rents.
• Hire purchase and leasing details.
• An inventory of stock on hand at the end of the accounting year.
• Bank and building society statements, passbooks, cheque stubs and paying in slips.
• Details of money taken out of the business for personal use.
• Details of any money brought into the business.

In general you should keep all electronic records and paper records which show monies flowing through your business. Remember the tax system is an adversary system. If you don’t want to pay excessive taxes you have to prove your case.

How Long to Keep Business Records?

Limited Companies

Limited companies and organisations liable for corporation tax must keep business and accounting records for at least six years from the end of their Corporation Tax accounting period.

• So if an accounting period ends in 2011, records for that period must be kept until 2017.

None Limited Companies

Businesses that are not limited companies must keep their records for five years from 30 January the year following the tax year.

How to Keep Business Records

How to keep business records really depends upon your technical skills and requirements.

Tax records can be kept in hard copy paper records or electronic records. Remember, whether you keep paper records or electronic records both methods must contain the front and back pages of each and every document.

If you are intending to keep electronic records one of the easiest methods of storage is to scan all documents (front to back inclusive) to PDF format and then archive the documents to external hard disk or CD.

Having a good, regular, regimented backup of your computer system(s) can also prove invaluable in disputes. So get yourself a good backup system such as Acronis True Image, a 1TB or better external hard drive, and use them. (You should be backing up your data anyway).

Health and Safety Records

All businesses in the UK, except those with less than five employees, must keep an accident book to record any injury at work. I would recommend you keep one even if you do have less than five employees as the law requires you to keep records of accidents anyway.

How Long to Keep Health and Safety Records?

Health and Safety accident books must be kept for at least three years after the date of the last entry. If your business does not use an accident book, you must still record details of accidents and keep them in a system that is compliant with data protection, social security and health and safety laws. Additionally, records must be kept of any significant findings resulting from risk assessments.

• The Health and Safety Executive (HSE) at http://www.hse.gov.uk/riddor can provide you with more information on the records you need to comply with health and safety laws.

Employee Records

Unfortunately, there are dozens of records which must be kept where employees are concerned. These include:

• Employees’ personal details (name, address, NI number, etc.).
• Details of weekly/monthly earnings and deductions.
• All expenses and benefits provided to them, such as health insurance and company cars.

How Long to Keep Employee Records?

Any employee documents relating to wages, salary and National Insurance must be kept for six years. This includes:

• Records relating to employer and employee contributions.
• Records related to wages, holidays, sick pay and hours worked.
• Records of pension scheme payments.
• Annual earnings summaries and documents connected with wage payments such as P35s and P45s.

Paperwork relating to disciplinary actions, working hours, wages, training and redundancy should be kept for six years after employment ceases for legal and reference purposes.

Statutory pay records, such as maternity pay, paternity pay and sick pay, as well as Pay As You Earn (PAYE) records, must be kept for three years.

Original employment contracts and other personnel records should be kept in case of disputes. Original documents must be produced by the employer at any tribunal or an explanation of what happened to them, backed up by a ‘statement of truth’ given.

• Records regarding application forms and interview notes should be kept for between six months and a year.

In all cases, employment records must be kept in accordance with the Information Commissioner’s Employment Practices Data Protection Code, which deals with:

• Recruitment and selection.
• Employment records.
• Monitoring at work.
• Information about workers’ health.

Data Protection Act Compliance

Your record keeping has to comply with the Data Protection Act 1998. It doesn’t matter whether you use paper records or electronic records the rules are the same. Unfortunately, the Data Protection Act is a little vague, stipulates that data should not be kept for longer than necessary but does not specify how long a ‘necessary’ period is.

So, for those documents that do not have statutory retention periods you should use your own judgement on how long to keep documents.

Employee Rights of Access

Your employees have a legal right to access information you hold about them. This includes information about grievance and disciplinary procedures and information you obtain through monitoring. You must normally provide them with access within 40 days of the request.

• IMPORTANT: Only keep records you need for the purposes of your business. Review your records regularly and dispose of unnecessary data.

Record Keeping Hints and Tips

As an employer you need to keep statutory records of:

• Tax and National Insurance.
• Pay.
• Holidays.
• Statutory sick pay and any other paid sick leave.
• Accidents, injuries, diseases and dangerous incidents.
• Keep paper copies of important signed documents such as contracts, even if your main records system is electronic.
• Keep only the records you need to keep for the purposes of your business.

Finally, HMRC can request that you keep your financial records for longer than six years if it begins an inquiry into your tax affairs.

Keeping the Right Business Records Conclusion

One final point, disposal of old data and records. It is your legal responsibility to dispose of personal data in a safe, secure and responsible manner.

Paper records and CDs. Don’t just throw your paperwork and backup CDs into the bin, shred them first. If you cannot shred them yourself there are plenty of shredding companies out there, use one.

Electronic Records. Same goes for old computers, hard drives, disks, tapes, memory sticks, etc. Just because you formatted them does not mean the data has been irrevocably removed. Use a Secure Erase Utility such as DBAN, a time-tested option for erasing HDDs that’s loved by geeks around the world. Alternatively, physically destroy them. REMEMBER TO BACKUP YOUR DATA FIRST.

Well, I hope you found something useful and enjoyed this article, Starting in Business, Keeping the Right Business Records. Don’t forget to let me have your thoughts in the comment box below. See you soon.