Year-end & cash flow

The importance ofkeeping business records as a startup founder

Few aspects of running a company can be as important as keeping substantial and well-organised business records, writes founder at Rapid Formations, Greamedonelly.

With any business, it’s important to set off on the right foot. From market research to a solid business plan, there are numerous factors that impact the day-to-day running of your business right from the get-go but few aspects of running a company can be as important as keeping substantial and well-organised records.

Apart from the legal requirement, good record keeping can assist with the smooth running of your business. Poorly kept business records, on the other hand, can actually result in a penalty from HMRC.

Keeping your records

As an employer, PAYE records need to be kept for a minimum of three years, not including the current year. If you are a contractor in the Construction Industry Scheme (CIS), the three-year minimum also applies in addition to the current year.

A minimum of six years is required for VAT records, either in electronic format, paper, or in a software programme. Personal tax returns (self-assessments) need to be kept for at least five years, starting after the deadline of 31 January of the applicable tax year.

The method used to keep your business records, however, has no legal requirements or guidelines in law. Original documents generally should be kept as proof that tax has been deducted, such as the P60 End of Year Certificate for PAYE, CIS vouchers, or dividend vouchers.

As such, you can keep and store your records in the most convenient way for your business, as long as all of the information in your documents is registered in a readable format. CDs, disks, memory sticks, or other storage devices are acceptable, as well as being convenient space savers.

Business records inspection

Members of the public may request to see statutory records for a “proper purpose”, in which the following information is required: company or organisation asking for the records, name and address of the person, purpose of inspection, and both how the information is to be utilised and who it is for.

Ten working days must be given as a notice period for record inspection. An exception is made if the inspection falls within other notice periods, such as a general meeting or a written members? resolution, in which case the notice period is only two working days. A “proper purpose” request must receive a reply from an LLP designated member, a company director, or secretary within five days, or risk incurring a fine.

Should HMRC contact you to view your business records, you should expect a phone call lasting no longer than 10 to 15 minutes, where you will answer questions that will help to determine how your records have been kept. Follow-up checks on the legalities of how you run your business and the contents of your records might follow.

Penalties for poor record keeping

If HMRC determines that your business records have no issues, you will receive a written confirmation. Should you need to improve how you keep your records, you are required to pay a penalty. Before this measure, you will be given time to adequately provide your records, and after three months the HMRC will arrange a follow-up visit. If, in this visit, your record-keeping has been improved, the penalty is removed.