The Importance of Good Record-keeping During the Pandemic
- 12 Mar 2021
- 5 minutes read
There have been significant changes occurring in the daily business lifestyles because of the wake of the COVID 19 pandemic and lockdowns.
These days more and more businesses are working remotely.
But whether you are working from home and having a small business or an established one, keeping complete and good records is essential.
Accurate record-keeping allows you to assess business performance in real-time and take corrective actions before it is too late.
Here we will have an insight into the importance of good record-keeping during the pandemic in details.
This blog post is divided into the following sections
- Why keeping good records during a pandemic?
- What records should a self-employed keep?
- What records should limited companies keep?
- How to keep good records?
- How can accounting software help in good record keeping?
- How long should you keep records?
- Is there any penalty for keeping inaccurate records?
- Hire a bookkeeper
1. Why keep good records during a pandemic?
Due to the ever-evolving challenges of COVID-19, all businesses are disrupted. In this situation, bookkeeping can easily take a back seat. However, accurate record-keeping should always be in front of the mind.
There will always be an ongoing demand for your records when,
- Applying for government-backed COVID-19 schemes (CBILS, BBL loans, for example)
- Filling your VAT returns
- Preparing and filing company tax returns
- Claiming your tax allowances
- Applying for loans etc.
Visit our blog about COVID-19 Self Employed Income Support Scheme (SEISS) to know how to use the scheme.
Not only these but keeping accurate records benefit in many ways such as,
Cash flow management
Without good record keeping, you cannot stay on top of the money coming in and going out.
Accurate records let you see the picture of your business's financial health and help you forecast any upcoming cash flow issues.
Better invoicing cycle
Missing out on any payments can result in late fees or penalties.
Accurate record-keeping help you manage and track your accounts receivable and sending the invoices to the right person at the right time.
Identify and prevent problems
Without proper record keeping, it would be difficult for you to identify and solve financial problems.
But good bookkeeping will allow you to see the forest through the trees so that if you identify the problem, you can take actions before they become critical.
Keep employees happy
Without proper record keeping, there is the risk of paying employees an incorrect amount of salary or paying late, which can cause many difficulties for both the employees and employers.
For instance, any misalignment between the employees' stated income and their actual earnings could have repercussions in their tax fillings.
Informed decision making
It's easy to make a business decision when you have all the scenarios, numbers and arguments on hand.
If you lack it all or a few of these details, your decision making can be potentially uninformed.
Accurate and sound records on hand can help you develop a coherent plan of action for things such as general problem solving or investment in product development.
2. What records should a self-employed keep?
If you are self-employed, you will need to have up to date records of your business's income and expenses.
Good record keeping will help you work out profit and loss and provide support while doing your tax returns.
During tax season, accurate records on hand will enable you to claim every possible relief.
You should keep records of,
- Expenses related to business activities
- Business mileage
- Sales and income of your business
- If the business is VAT registered, then VAT records
- If the business has employees, then PAYE
While claiming tax relief, you'll must keep records of business expenses such as bank statements, sales invoices, purchase invoices and so on.
3. What records should limited companies keep?
If you are operating a limited company, then it is important to have records of income, expenses, debts, details of goods brought and sold by the company etc.
Due to the complex legal structure, limited companies need to keep records of the company itself, such as,
- Details of directors & shareholder
- Details of any charges on the assets and debentures
- Details of loans and mortgages
- Details of shareholder votes and resolutions
With the records about the company, you need to keep accurate records of finance and accounting of your company such as,
- Invoicing and aged receivables
- Bills and outstanding supplier payments
- VAT records
- Fixed assets register
- PAYE records
- Employee leave records
- Loan and lease agreements
- Money spent and received by the company
- Debts your company owes or is owed
- Good bought and sold
- Stocks your company own etc.
When filing tax, you'll need to have records on hand such as,
- Company turnover
- Total income and profits before deduction and reliefs
- Tax reliefs and deductions
- Tax reconciliation
- Losses etc.
- Claiming any allowances, like AIA
How to keep good records during a pandemic?
- Set up your accounting software system
- Start doing a monthly summary of expenses along with the receipts
- Keep track of payroll and tax deductions
- Keep records of all the documents and receipts
4. How can accounting software help in good records keeping?
Accounting software like Xero and Quickbooks are undeniably game changers in this pandemic when everything is operating remotely.
Cloud accounting software gives easy access to the company's financial data from anywhere and anytime.
Advantages of accounting software include,
- Compliance with HMRC's Making tax digital (MTD) initiatives
- Easy to record a transaction that includes income, expenses, payroll, inventory etc.
- Requires less storage space
- No worry of time-consuming updates
- Automatically tallies amounts and gives reporting functionality
- Help to keep up with the regulations
- Allow you to back up records
- Easy to generate invoices and reports
5. How long should you keep tax records?
Self-employed persons must keep records for at least five years after the deadline of self-assessment (31st January) of the relevant tax year.
Let's say if you have submitted 2019-20 year tax for which the deadline is 31st January 2021, then you must keep all the records until 31st January 2026.
For limited companies, there are more regulations to follow when it comes to the company tax return.
Limited companies have to keep records for six years from the end of the tax year.
However, there are several cases when limited companies need to keep records longer than the limit mentioned above, such as,
- Investigation by HMRC
- Late tax filing
- The company has bought equipment that should last more than six years etc.
6. Is there any penalty for keeping inaccurate records?
Yes! If you fail to keep accurate records, then HMRC may charge a penalty of up to £3,000 per tax year.
If the HMRC came to know the failing in record-keeping, this will go hand in hand with an under declaration of profit and can charge penalties in respect of additional tax and National insurance contribution.
In case there are no records kept, then a penalty would be incurred for failing to keep the records in addition to other penalties.
7. What if the records are lost, stolen or destroyed?
First of all, put your best possible efforts to provide figures to HMRC in case your data is lost, stolen, or destroyed.
Tell HMRC if you are using estimated figures or provisional ones when it comes to filing your tax return.
Here, provisional figures are temporary numbers you are submitting while you are waiting for the actual records, and once the actual records arrive, you will need to submit them to the HMRC.
8. Hire a Professional
It is worth delegating your record-keeping to a bookkeeper of an accountant as a professional can help you set up a finance function that can expand with your business.
Consider the checklist below,
- Are you recording your invoices & correspondence in order?
- Are you able to record and analyse all your cash, credit and bank transactions?
If the above tasks are on your to-do list and take more time than you have, it is time to seek professional assistance.
A bookkeeper or an accountant on hand can ease the burden of the responsibilities mentioned above and allows you to focus on the critical areas of business.
With the knowledge and experience in business's financial aspects, apart from keeping good records, a professional can help you know what taxes are due and filling dates of tax returns.
In short, keeping good records will allow you to run your business in a more lucrative way, not only during a pandemic but also post-pandemic.
It is always a wise decision to hire an accountant who can keep all the finance and business records in order so that you can focus on the things you do best.