Accounting and bookkeeping

The law requires you to record and keep account of the financial transactions your business undertakes.

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Business records

Every business must keep business records.

HMRC may wish to inspect your business records to ensure that the business is paying sufficient tax, staff are being paid appropriate wages and National Insurance contributions are being properly made. They will also want to check that the business is not being used for money laundering purposes.

Why do I need to keep records?

The key requirement of an accounting system is permanenceYou should not make business records in a form where they can be erased or changed.

All accounting and bookkeeping rules are based around a systemic requirement to:

  • record transactions when they happen; and then
  • during the relevant accounting period, classify and reconcile transactions to show how much the business has received for each and every recorded transaction during that accounting period

If the business can be shown to be making a profit within that accounting period, then it may have to pay tax on the accumulated profit earned.

Distinguish records from audited accounts

Following a change in the law, most UK start-up businesses will not need to be audited because they are now exempt under the Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 (SI 2012 No. 2301).The regulations came into force on 1 October 2012, for accounting years ending on or after that date.

However, these regulations do not remove the requirement for the keeping of business records in permanent form within a proper and organised accounting system for a period of years and you will still need to do this.

You can find out more information about auditing, accounting and reporting requirements on GOV.UK.

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