When you are in the role of being associated with the business world as a sole trader, as a business partnership, or you might carry out business activities through your limited company. There are several confusions, especially among beginners who often enquire about whether to keep the records for a long period of time or just discard them after use. It is best to learn about the efficient handling of receipts for taxes as you might need them in the future to keep yourself away from any kind of unfavourable business consequences.
There can be possible situations when you feel like a certain record is not really important to keep, however, the same record saves you when you are stuck with a problem in the future. This comprehensive guide has catered to the frequently asked questions based on the importance of maintaining good records, what kind of record you must keep, for how long you must keep the record, and what can be the pros and cons of maintaining the records. Let us delve further into the discussion to gather more about the consequences of record keeping.
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What is the Importance of Maintaining a Good Record?
People often enquire about the importance of keeping a record in the business world. The first thing to focus on here is that it is a part of the legal obligation to have a record of your business activity and you might need it for settling a business issue in the future. Other than the legal obligation, there are multiple beneficial factors that are associated with maintaining good record keeping. As this brings confidence in you that all your paperwork is in the right order to look into at any hour of need.
Moreover, we can take the instance of finding an old record of a certain business transaction to be sure about the amount so, the right kind of record will help you to do it within minutes. Without a record, this will not be possible. You can even use online software to maintain the records. This is handier than the traditional ways. These days people are more inclined towards accounting software. The professionals, however, advise keeping the original paperwork instance to provide it to HMRC in case you undergo any kind of investigation.
What Kind of Records you Must Keep in the Business?
In simple words, we can say that any record from the documents of your tax returns to the paperwork of your self-assessments is important to keep a record of. This could possibly focus on the accounting record of your business, VAT receipts for the business expenses, the received and processed invoices, and other business records like liabilities, expenditures, income, and assets.
This will be helpful to make the claim on a certain situation if you are in a good position to qualify for the criteria. In short, any kind of records related to your small and big business activities must be kept for a certain limit of time to be on the safer side.
For How Long Do I Need to Keep the Records?
Now normally once the business owners are sure about the kind of documents and paperwork to keep a record of, the next thought that comes to mind is for how long will it be required to keep these records intact. This basically depends on the kind of business you are carrying out that will help to decide the time limit of keeping a certain record. This is because of the fact that the needs of every business type like partnerships in business, incorporation of a business, self-employment, and limited companies will have their own kind of business needs.
In case of being in the position of partnership or if you are running your business as a self-employed individual, the minimum limit for keeping the records is five years. This limit of time and the rules are a little different if you are carrying out your business activities as a limited company. The records related to tax in this case will be kept for a minimum limit of six years. This will be considered from the end of the current accounting year for your company.
What are the Disadvantages of Not Maintaining the Records?
The main and prominent disadvantage of not keeping a good record of your paperwork and other document is the inability to provide them when HMRC requires them for any certain reason. You will end up struggling with paying a hefty amount of fines and other penalties in this case. You can also be asked to recreate the records which means you are investing double the time for the same kind of cause. The best practice is to keep the records intact as discussed earlier to keep such unfavourable consequences, fines, and other penalties away from damaging your business progress. Consider the required time period to keep your records intact as advised by the experts.
The Bottom Line
Now that you have gathered a fair amount of information about how to handle receipts for taxes in the UK, we can bring the discussion towards wrapping up. This is imperative to be aware of that how long to keep the receipts for taxes in the UK for your type of business. As this will help you to prevent any business damage if HMRC requires the records at any certain time for their own reasons. Otherwise, you will have to go through the process of making records all over again. Which is a time-consuming process. This can even make you pay fines and penalties if your inability to provide the documents is observed by HMRC in the future. We hope these few minutes of reading will help you to develop a better understanding of maintaining records of your business details in a better way for the future.
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Disclaimer: All the information provided in this article on “receipts for taxes”, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.