Staying Abreast With HMRC Guidelines
Posted: Jun 21, 2017
Accounting may not be the most riveting subject in the business world, but it’s certainly one of the most important. Keeping your financial records organized can literally make or break your operation. Failure to take the necessary steps can result in incorrect cash projections and issues filing your tax return. This could cause irreversible damage that could render your business useless..Required Records
You should keep everything you have received or sent that will affect the outcome of your self-assessment or company tax return. These records could relate to anything from general business expenses to client payments. You also may have to keep these records for a number of years after filing the corresponding tax return, as they could be relevant in the future.
According to HMRC guidelines, you should keep all of your tax records for at least five years after they have been filed. If you close your business this is reduced to 22 months. In the event of a late filing, you may need to keep them for longer.Record Storage
You can keep your records on a computer to reduce paperwork and make the filing process more efficient. If you do all of your filing digitally you may not need to keep all of your paper records, providing you capture the information on both the front and back of the original documents.
If your records are destroyed you must inform HMRC immediately and do everything in your power to recreate them. You must also state weather you have made estimations when completing your tax return. If you have to make adjustments at a later date, you may have to pay interest or penalty charges.Deductions and Reliefs
There are two main categories of document you will need to keep for your filing: documents you have signed or been given and personal finance records. Court orders, pension plan certificates, bereavement allowance certificates and birth certificates, etc., all fall under the "documents you have signed or been given" category. Bank statements, loan documents and receipts, etc., all fall under the "personal finance records" category.
If you’re a director, employee or office holder you will need to keep everything that relates to your income and expenses from your employment. Such documents include your P60, P45, annual pension statement, payslips, benefits and gratuities.Expense Records
If you are ever unable to attain evidence relating to your expenses, even if the amount is small, you must make a record of the amount you spent and what it was for.
Expense records often include motoring. In these circumstances you must record your mileage, fuel costs and how much you are being paid by your employer to calculate exactly what you can deduct in accordance to Mileage Relief Rates. In addition, if you spent money on parking and toll charges, etc., this can be included in the final deduction.
If you conduct business from home and want to claim for heating and lighting costs, you must keep sufficient records to support that a proportion of your expenses relate to your business as opposed to private use. Depending on your circumstances and office setup, you may only be allowed to claim for specific rooms.Deductions
Before you file your tax return or start calculating how much income you should set aside to cover your tax bill, it’s important that you understand what expenses aren’t allowable. You can’t claim deductions on assets such as land, property and shares; interest on cash borrowing, such as bank loans; and cash withdrawals for personal use.Bookkeeping
Prepare in advance if you need to pay for major expenses. While you don’t always need to plan for small purchases such as fuel and bills, always make sure you consider the long-term financial implications of large investments, such as hiring staff or renting a property.
Use tracking software whenever possible. If you make a purchase, no matter how big or small, record it using automated tools. There are plenty of mobile applications around that are specifically designed for this job. In addition, you could use a business credit card to pay for all of your business expenses.
Systematically set aside a certain amount of your net income into a separate bank account to cover HMRC taxes. Perform a seasonal tax check to make sure you have saved up enough money. Always set aside more than you expect to pay. This will ensure you’re covered if you make mistakes and become subject to HMRC penalties.
Many new businesses choose to take on multiple roles and perform their own accounting. This is never a good idea if you aren’t completely up-to-date with the latest HMRC tax legislations. Most accounting firms in London will lighten your workload and allow you to focus primarily on revenue generating tasks, so if you ever have doubts, contact a professional.
Writer and humanitarian from London, England.