Keeping accounting records is an essential part of becoming financially responsible. Through historical documents, businesses can keep track of their growth, losses, and other financial hardships they went through in the past.
However, there are many questions surrounding accounting records that require some answers. Therefore, before keeping accounting records, try to learn more about the process by knowing the frequently asked questions about it today.
1. How Long Should I Keep It?
Keeping accurate and up-to-date accounting records is essential to running a successful business. However, the length of time you should keep your accounting records depends on the laws and regulations in the city the individual comes from.
But according to the UK’s official government website, it should be at least five years after the January 31 submission deadline of the relevant tax year, as the HM Revenue and Customs may check the records later to ensure the correct tax payment.
2. What Are the HMRC Requirements?
The HM Revenue and Customs (HMRC) requires businesses to keep accurate accounting records that show all income, expenses, assets, and liabilities, including receipts, invoices, bills, and bank statements. Companies must maintain records of all transactions for at least five years.
Keeping financial records according to HMRC requirements ensures that businesses can accurately report their income and expenditure for tax purposes or report the value of their assets for tax purposes. As a result, every piece of information given should be as accurate as needed.
3. Why is it Important to Keep Records?
It is essential to keep records for a variety of reasons. Accurate and detailed records allow businesses to track their income and expenses, monitor their cash flow, and analyze their performance. Additionally, documents are essential for filing taxes, preparing financial statements, and making informed business decisions.
Keeping records also helps to ensure compliance with laws and regulations and can be used to substantiate claims and defend against disputes. Finally, documents can be used to back up a company’s financial statements and provide evidence of ownership and other legal rights. It can act as a piece of evidence presented to authorities as needed.
4. Can the HMRC Go Back 20 Years?
The HMRC (Her Majesty’s Revenue and Customs) can go back 20 years to investigate and audit taxpayers. The HMRC has the power to look back 20 years to investigate potential tax irregularities and to assess whether a taxpayer has paid the correct amount of tax.
Known as the “look-back period,” the HMRC may look back further than 20 years if there is evidence of criminal activity or fraud. Therefore, keeping accurate records of your income and expenses for at least this time is essential.
5. Which Records Should I Keep?
Businesses should keep records of all their income and expenses for at least the past 20 years, including bank statements, invoices, receipts, and other documents related to their financial activities. It is also essential to keep records of any assets you have owned in the past 20 years, such as property, stocks, and bonds. Also, companies should keep any forms of tax returns or other HMRC documents.
Locating missing tax records can take up too much time. Therefore, keeping them in one place should become valuable practice businesses learn. As a result, it will become easier to find the documents needed as they become required anytime soon.
Tax season can be stressful for businesses of all sizes, and searching through various sources for missing tax records can be a time-consuming and tedious task. Refrain from making the same mistakes, and start keeping tax records today.
YRF Accountants Ltd. offers bookkeeping services in Bolton, helping small businesses manage their finances. We aim to ensure our clients stay on top of their bills and other expenses in running the business by handling all financial matters. Speak with our tax auditors in Bolton and book an appointment on our website today.