How to Make Sure that HMRC Don’t Pick on You for Failing to Keep Proper Records

The HM Revenue & Customs (HMRC) have warned that they are planning to clamp down on around 50,000 small businesses over the course of 2011 for failing to maintain proper records and underpaying corporation tax.  They say that 40% of all SMEs keep poor records and are likely to owe tax...could you be one of them?

HMRC said it will use its existing powers to deal with the worst cases each year from the second half of 2011 and penalties would be put in place “for significant record keeping failures”.  More than 2 million small firms that keep their financial records in poor order will be faced with investigation and fines in excess of £3,000.

In very basic terms, you have to keep records going back 6 years and HMRC will be looking for things like:

·  Boxes of invoices, bank statements, receipts and cheque stubs with no supporting books or analysis

·  Books that aren’t regularly kept up-to-date (i.e. at least monthly)

·  Unaccounted for amounts

·  Books that appear to be compiled from bank statements rather than actual transactions (i.e. written up out of date order)

However, as HMRC claim, there are clear benefits for SMEs (other than avoiding fines and taxes) from better record keeping.  It is a proven fact, that businesses are more likely to succeed if they keep good accounting records as they’re able to see instantly if they’ve got enough money coming in, if people are paying them, and are able to plan ahead.  According to a survey carried out by Yorkshire Forward, 80% of businesses who use computerised accounting succeed whereas 80% of businesses who don’t, fail!  The key is to focus on creating business intelligence that you can use to your benefit rather than just keeping records for the tax man because you have to.

Here are our 3 top tips on how to do it:

1.   If you don’t have time or don’t really know what you’re doing, make use of one of the growing number of freelance bookkeepers or virtual assistants.  Obviously there will be a cost involved, but what you’re buying is peace of mind and more time to concentrate on what you do best – earning money.

2.  Most businesspeople nowadays have a smart phone and there are numerous apps to help you save time and keep on top of your finances, for example there are apps that let you photograph and record your expense receipts (or you can just photograph them and email them to your bookkeeper).

3.  Newer online accounting packages are easier to use, instantly accessible, flexible, cheaper and help you save time and money.  Most packages will also let your accountant and bookkeeper access your accounts remotely which gives you the choice of doing as much or as little of your own accounting as you’re comfortable with or can afford.  It also means that they’re on hand to help you solve problems or rectify mistakes and to give you advice throughout the year and not just at your year end.  And doing things this way may also save you money on your accounting bills as there will be less for your accountant to do at key times.       

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About the author - Liquid Accounts is a market leader in online accounting software. They create jargon free, user-friendly business accounting software designed to save SMEs and their accountants, time, resources and money.  The software is completely based, developed, stored and supported in the UK. They are ICAEW and ICB accredited.

For more information visit: www.liquidaccounts.net