On the record
Ralph Morton explains why the taxman wants you to keep your records straight.
The taxman – a figure of fear, jokes and fun. But mainly fear. However, the taxman, better known as HM Revenue & Customs (HMRC), is changing tack. In a metaphorical sort of way, HMRC is putting its arm round the shoulders of Small and Medium-Sized Enterprises (SMEs) and offering help and assistance.
Beware the smiling assassin, of course, but it does seem HMRC is changing its attitude to SMEs with this message: keep good records. And if you need help in providing good records of your taxable business, then HMRC is providing tools to make it easier for you via its Business Link website.
And what’s the reward? HMRC says if you get your tax right and provide help when times are tough – for example, during cash flow shortfall periods - then HMRC may well help you defer payments until your business recovers its financial health.
Stephen Banyard, director of HMRC’s Business Customer Unit says that poor record keeping costs the Treasury £6.5bn a year, which is why it’s trying to encourage better record keeping and filing.
There is, of course, a ‘but’. And that’s the threat of investigation for those businesses that are consistently late with returns, or are incomplete, or misrepresent salient points that might attract the interest of the taxman. “We are going to focus on those businesses that need help; and those who want to bend the rules,” says Banyard.
“For those that get their tax right, we’ll give them more time to help when necessary, for example during short-term cash-flow problems,” Banyard continues, pointing out that so far HMRC had helped businesses reschedule over £6bn of tax, NI and VAT payments through its Business Payment Support Service during the current economic downturn.
“Without good records, you can't run a good business,” continues Banyard, “and we’re keen to promote best business practice because it can save businesses money.” However, he does have a blunt warning: “For those who won’t get their tax affairs in order, we’ll be investigating their businesses.”
It’s a threat not to be taken lightly. Nobody wants an investigation – let alone the business disruption such an action would incur. So what should you be doing? Here are six tips for good record-keeping from the HMRC:
Six tips for tip top record keeping
1 Set up a reliable system for keeping full and accurate records of your income and expenses from the outset.
2 keep records throughout the year - update these records regularly, rather than letting the paperwork pile up.
3 Keep your records for a minimum of six years.
4 keep records to show what you have bought or sold relating to your business. This should include details of all cash transactions as well as invoices and receipts.
5 If you are an employer, you must keep records of wages paid and details of tax and National Insurance that you have deducted and paid to HMRC.
6 Keep bank statements and building society books - this is particularly important if you don't have a separate business account. You should be able to show clearly what you have spent personally and on the business.
Where to go for help
HMRC has this factsheet on record keeping – what you should keep, for how long and so on. It can be accessed in pdf format here: http://www.hmrc.gov.uk/factsheet/record-keeping.pdf
Business Link. HMRC is putting all its advice, particularly for small businesses and traders, on the Business Link website. There are video tutorials to help you understand what you need to keep and why and for how long. Go to http://www.businesslink.gov.uk, and click on the highlighted ‘Tax help – Tax doesn’t have to be taxing’ button.
Business Payment Support Scheme – help in deferring payments if you are having cash flow difficulties: http://www.hmrc.gov.uk/pbr2008/business-payment.htm