Sounding Like a Broken Record

The majority of clients always fall down when it comes to record keeping. I often ask myself, why is it so hard to keep appropriate records? The problem is when it comes to their yearly tax returns accountants and tax specialists often have to use estimates and this can be an issue with HMRC. Furthermore you have to keep your records for 6 years in a safe and organised manner in case of an investigation by the Revenue but in practice when a client gets investigated for previous years they may not be able to obtain the requested information and suffer penalties and additional tax.

HMRC have recently set up a number of guides to help self employed individuals and businesses ensure they are keeping appropriate records. The guides cover:

- Keeping Records for Businesses
- A general guide to keep records for tax returns
- Setting up basic record keeping
- What should be kept?

While this seems nice of HMRC to post these guides my view is that you should all take this as a big warning sign. HMRC investigate returns on a random basis but if they see something out of the ordinary or what perceives to be an estimate they can look back to previous returns. HMRC will be stepping up their reviews of self employed individuals and businesses over the forthcoming year.

Richard Mannion of Smith & Williamson stated " HMRC planned record checks marks a change and hardening of attitude, business owners should take these warnings seriously".

My advice would be to follow these 6 steps:

1. Keep records going back at least six years
2. Retain invoices, bank statements, purchase details, expenses and so on
3. Be careful when allocating personal and business use and have necessary paperwork to back this up
4. Be up to date
5. Avoid estimates
6. Provide everything to your tax advisor and get him to keep you up to date

Each year clients tell me they will be more organised next year and when next year comes around they are even less organised than the year before! So I say stop sounding like a broken record and let your accountant/tax advisor get your records organised and up to date.

Feel free to contact me mitch@ljd.uk.com