Entrepreneurs, including the self employed, recently formed businesses and people running more than one business should take extra care with record keeping for their VAT and general tax affairs. This is because they are likely to come under closer scrutiny from HM Revenue and Customs as they have traditionally been seen as the groups of people at greatest risk of making mistakes in their tax returns.
“Moreover, the taxman can now carry out checks on individuals and businesses which relate to the current year. This makes it more important than ever before to make sure record keeping and filing are up to scratch – and then to hold onto those records. The taxman expects to see records going back for at least six years,” said Richard Mannion, national tax director at Smith & Williamson.
“In light of the recently announced tax gap of £42billion and the pressure on public finances, the taxman will be wanting to recoup funds as soon as it can from people and businesses who have under-paid their tax,” warned Richard.
“Certain areas frequently catch people out. For example, if you use assets for both business and personal use - perhaps if you are working from a spare bedroom in your home - you must keep sufficient records to back up any claims you may make for electricity and gas, for example. Similarly, if you use a car for both business and personal use you need to keep a log of mileage associated with the business and hold onto receipts for petrol and any repairs.”
“VAT is clearly high on the taxman’s agenda, not least since HMRC estimates that around £15billion of VAT has been underpaid. Clearly, it will be eyeballing many businesses VAT returns.”
“Another area that frequently trips people up is the question of private money put into a business or taken from it. Even if it is your own business, records on this must be kept to demonstrate exactly what has been done.”
“In general terms, the self employed must keep a record of all sales and takings, purchases and expenses. Any purchases or sales of assets such as a computer, tools or other equipment necessary for your work must also be noted, but separately from day-to-day purchases.
“Further records will be required, depending on your business. These may include details of petty cash expenses, invoices and receipts, till rolls, hire purchase and leasing arrangements and bank statements.”
“If you have more than one business or self-employment, you cannot lump all these together for tax purposes. Instead, you must keep separate records for each and submit an entry for each when completing your tax return.”
“For many businesses, such as private therapists, sports trainers, plumbers, electricians etc, the taxman will expect that some of your clients pay in cash. You need to keep a careful note of this with dates of these payments and corresponding bank records,” concluded Richard.
Richard Mannion, national tax director at Smith & Williamson, the accountancy and financial services group
020 7131 4252 / 07799 761 326 or email Richard Mannion
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Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
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