Gerald Charles & Co Accountants


Am I obliged to keep records for tax purposes?

Yes. You must keep full accurate records for your business from the start. You need to do this whether you send in simple summary of your profit/loss, prepare the accounts yourself or have an accountant do it for you. It is important to remember that figures which are contained in your tax returns, your accounts or summary profits/losses, must be correct. The records you keep must be sufficient to enable you to make a proper return of income for tax purposes.

You should bear in mind that you need to keep accounts for other reasons other than tax, For example, your bank may want to see them when considering an application for a loan or mortgage.

What records must I keep?

The type of records you will need to keep will depend on the nature and size of your business. Business records can be kept on computerized systems or manually.

The records must include books of account which show

  • All purchases and sales of goods and services and
  • All amounts received and all amounts paid out. Thses should be recorded in a manner that will clearly show the amounts involved and the matters to which they relate.

All supporting records such as invoices, bank and building society statements, cheque stubs, receipts etc., should also be retained.All payroll records must also be kept in the prescribed format.

What information will I need to prepare my accounts?

At the end of the accounting period you will need to have details of:

  • Your business takings
  • All items of expenditure incurred, such as purchases, rent, lighting, heating, telephone, insurance, motor expenses, repairs, wages…..etc.
  • Any amount of money introduced into the business and its source
  • The amount of any cash withdrawn from the business or any cheques drawn from the business bank account, for your personal or your family’s use (these are normally referred to as drawings)
  • Amounts owed to you by customers, showing the total amount owed by each debtor
  • Amounts owed by you to suppliers, showing the total amount owed to each creditor
  • Stocks and raw materials on hand

Can I Claim For Pre-Trading Expenses?

A business, whether Sole trader, Partnership or Limited Company can claim for certain pre-trading expenses when calculating their profits.

Examples of pre-trading expenses are:

  • Accountancy fees
  • Advertising costs
  • Feasibility costs
  • Costs of preparing business plans and securing finance
  • Premises expenses, such as rent, from which the business operates from
  • Cost of plant and machinery required

All these costs can be offset against the profits from the business.

How should I record these transactions?

In order to keep control of your transactions a full “double entry” book keeping system is recommended. Any system which falls short of this should be capable of showing the amount and source of:

  • All income
  • All purchases and other outgoings

Simply keeping the bank statements for the business is not enough – it does not fulfil your requirements to keep proper books and records.

What type of accounts will I have to submit with my tax return?

You will need to submit:

  • Profit & loss account Showing details of income received less cost of the goods sold less any various other expenses of trade during the period, the difference being the net profit/loss of the business for the period
  • Capital account Showing details of opening and closing capital, net profit/loss for the period, cash introduced and drawings
  • Balance sheet setting out details of the business assets and liabilities at the end of the period.

A capital account and balance sheet may not always be required, depending on the circumstances and level of your trading activities.

If my business is small can I submit a simplified form of accounts?

Yes. If your business turnover is less than £81,000 per year simplified accounts can be submitted showing turnover and total expenses giving net profit/loss for the period.

How long must I keep my records?

You must keep your records for six years after the end of the accounting period.

What happens if I fail to keep proper records?

Failure to keep adequate records, or failure to keep them for the necessary six years, is an offence and you could be heavily fined, typically £3,000.

Do I need an Accountant?

It is not necessary to have an Accountant or Tax Adviser in order to complete your tax returns and claim the various allowances and relief’s due to you. However, for specific advice on book keeping and financial matters generally it would be in your own interest to have an Accountant. The tax office will normally correspond with your Accountant regarding your tax affairs, if you have one.

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