This example is for a bank account.  You can do the same for a credit card and for cash.

It is easy to get overconcerned or to over complicate this process – just remember you are recording how money was spent or received (from the bank, from cash) and then why it was spent or received.

If you want to make your records really good you need to reconcile them regularly.  To reconcile the bank for a month you take the bank statement balance at the beginning, add on the total of what has gone into the bank, take off the total of what has gone out and check that the figure you get is the same as the bank statement at the end of the month.  

If the two figures do not agree you will have made a mistake.  This could be, something you have missed, an amount you have written down wrongly, or something you have put in twice.  

You will also need to be able to keep track of who owes you money and who you owe money to.  In the simplest systems this is just a stack of invoices that are unpaid.  As they get paid you write the date of payment on them and file them.  It is worth making a list of these at the end of each month and at the very minimum at the year end.

Bookkeeping software helps you carry out this process electronically, avoiding the need to keep piles of paper.

If you hold stock, you should count this and value it at least once a year at the year end.  For many businesses it is important to do this more often, so you don’t try selling something you haven’t got.  The value is the lower of what you paid for it or what you can sell it for.  

What about the physical paperwork?

It is advisable to keep the paperwork you receive.  

Much of what you get will now be electronic.  I would not advise printing any of this for the sake of it or printing extra copies of your sales invoices, this is just a waste of paper and ink, however, do make sure you can back all transactions up.  Anything that is received as paper is best kept as our law has not kept up with modern technology and if there are issues in the future you may need the paper copies.

For a business using a fully integrated cloud based bookkeeping system including AutoEntry or Receipt Bank I would then suggest that all the paperwork, once scanned if necessary, is simply filed in one file or box in the order it is received.  It is very unlikely you will need to go back to it.

Keeping Electronic records

You need to keep any records that are kept or received electronically, this includes bookkeeping records, sales records, any unprinted purchase invoices that have only been received electronically etc.  Unfortunately, I mean keep everything!  Files on your own computer should be backed up regularly and you should also make sure that you keep backups of any cloud-based systems in case of loss.  This is especially so if you change bookkeeping system.

It is important to keep records in a format that you can still open and read the content, so you need to keep this under review and be aware that you could be asked to print and send details to HMRC etc. in 6 years’ time.

How long should it be kept for?

The basic rule is that records should be kept for 6 years from the end of the financial year to which they relate.

If the records relate to transactions that cover more than one accounting period, the 6 years is measured from the end of the last year to which they relate.

You should keep records longer if they relate to assets (like buildings, and cars) that last longer than 6 years.  So, if you purchased a property the records should be kept for longer, including details of any improvements to the property.  

If you file your taxes late then the records need to be kept longer and if HMRC has started a compliance check into your accounts and tax you should keep the records.

GDPR

GDPR allows you to keep proper accounting records but it is important to check you are not keeping information for too long.  You are required to keep payroll records as part of your accounting records if you have employees.  This will override any member of staff’s right to be forgotten within that period of time, but take care that you are not keeping more information than is necessary.  

Full information can be found on the Information Commissioners’ website.

Options for how you keep your records

Making Tax Digital

Currently, if you or your business is not VAT registered or is voluntarily VAT registered you can keep old fashioned paper records.  If you or your business is VAT registered because you have to be registered you must keep your records electronically.  This can be on a spreadsheet, but it is easiest to do using cloud-based accounting systems – they include a lot of time saving features and increase accuracy.  Over time it is likely that electronic record keeping will be rolled out to everyone.

Cloud accounting software

Where it is cost effective for a business and the business owner is happy to have information on the cloud my recommended option for record keeping is a cloud-based system.  I work mainly with QuickBooksTM, but other options exist such as Xero and CashFlow to name just two.

These systems allow you to raise sales invoices, feed your bank, PayPal and credit card transactions straight into the software, and coupled with AutoEntry or ReceiptBank you can simply scan in any purchase invoices.  The system then matches sales with money coming in from customers and payments with the purchase invoices you scan in.

You can use the systems in conjunction with apps like GoCardless to collect money by direct debit and can import things like eBay sales – there are so many options available.

For VAT registered businesses this all means you comply with Making Tax Digital whilst minimizing the time and cost of day to day bookkeeping.

Accounts offered by new banks

There are now a number of bank accounts (for examples Tide) that allow you to analyse your spending and even raise invoices because they incorporate simple bookkeeping systems.  If you run a simple business these may well meet your needs, but if you are using an accountant you will need to make sure you can get information to him or her and check the charges and terms carefully.

Desktop accounting software

There is not much specific desktop accounting software currently available, most is now on the cloud but VT (google search VT Software) do offer a free cash book and a reasonably priced full bookkeeping system that allows you to keep your records, raise sales invoices, track VAT and keep detailed records of who owes you and what you owe.  It also has additional software available that will electronically transfer VAT returns to HMRC, thus meeting Making Tax Digital requirements.

Spreadsheets

Spreadsheets are perhaps the cheapest an option for keeping the records for smaller businesses, although they become cumbersome if you have a lot of transactions and can be prone to error and accidental changes.  Your accountant should be able to help you transfer figures to HMRC when filing VAT under Making Tax Digital.

In Summary

For many business owners keeping the books is a chore but good records can help you keep costs down, keep track of your business and head off trouble, such as falling sales, before there are nasty consequences.

How I can Help

If you would like help either setting up or running a bookkeeping system, please get in touch for a free consultation.

For those of you who would like a list of items to keep

This is not intended to be an exhaustive list of items as businesses vary but these are the most common things.

• Sales invoices, including sales of fixed assets, along with contracts

• Details of any amounts owed to the business

• till rolls

• Items taken for personal use at sales value

• Paperwork to support any other money received, such as capital introduced, grants received, insurance claims

• Purchase receipts and invoices to back up spending, along with details of what is owed.

• petty “cash books”

• orders and delivery notes

• Where you run a payroll, you need to keep copies of your payroll runs, payslips, and details that you hold regarding staff.

• Details of money drawn out if you are a partner or sole trader

• Details of salary and dividends (with full notes, minutes and vouchers).

• Bank statements

• Insurance documents

• Correspondence supporting or explaining financial transactions and decisions made

• Evidence of fixed asset purchases

• Stock – in theory at any point in time but at least annually

• Amounts owed to the business

• Cash at the bank and cash in cash tins and tills