What records do I need to keep for my business or my personal tax returns?
As I admitted to Sarah from Organised Chaos how important my work space is on my productivity level, she mentioned a very important question that her clients often ask. When she’s working with clients in their business environment, sorting out their filing systems or setting up new procedures for data storage for example, many of her clients were not 100% clear on what books and records they must keep and in what format, for revenue purposes.
As we talked about the shocking statistics of work place clutter and what it might cost a business, see Sarah’s article last week, How clutter affects your work place, it became apparent that a short article hopefully would provide some clarity for business owners.
I’m going to reference the Revenue’s website (as I often do) as in the past year or so, the Irish Revenue website has become a lot more user-friendly. Their guides are very helpful and easy to find if needed. If you’re starting off and not sure what to keep, have a read of the following link Revenue – keeping records
Below I hope to answer questions relating to ‘how long’, ‘how much’, ‘what exactly’, ‘computerised records’ to name a few. Please feel free to ask any questions in relation to your own records if I haven’t addressed it somewhere below.
Did you know your paper records must be stored within the State? Exceptions to this require Revenue agreement and are subject to conditions.
HOW LONG ?
You always hear accountants talk about keeping records for six years.
The six year period is from the date of that transaction, therefore you are really keeping records for this financial year and a further six years. If your company year-end is 31 December 2017, then on 1st of January 2018 you may want to get rid of the documents held for the year ended 31 December 2011.
HOW MUCH ?
While you may think keeping you records like purchase and sales invoices and bank statements in various files is sufficient, I’m afraid it’s not all that’s needed. In order for Revenue to review your tax returns and ensure the backup you have kept is sufficient, they expect you to keep what is known as ‘linking documents’. For example, if you prepare your VAT returns from a computerised package, printing out what makes up the VAT return (the detailed invoice references for both purchases and sales) would also be expected to be kept.
While you may be very clear about where you have your invoice files or banking files, the linking documents may need to be printed or saved (if maintaining on a computerised system). As these linking papers are crucial in terms of backing up your tax returns made, it’s really key you understand what should be kept. If you change accounting system, you may not be able to re-create or access older reports, therefore printing or saving various reports on an annual basis (at a minimum) should be a routine you get used to. I’d suggest once your year-end has passed and you are tidying away the previous year’s files would be a good time to ensure all the linking documents are saved or printed and stored.
If an accountant is preparing your books and records, they may have these records on your behalf however, the onus will always be on you to have these ready for Revenue if an inspection is to take place. Therefore you may need to ensure you get all your relevant records if you move from one accountant to another.
The purchase invoice files you keep are expected to be numerically referenced by you, kept in sequential order as with sales invoices and in a format that is easy to follow.
Failure to keep linking documents can have you liable to a Revenue penalty of €3,000 (except if it is proved that no person was chargeable to tax for that year of assessment or accounting period).
WHAT EXACTLY ?
There are various lists in the documents referenced as to what you should keep on the revenue link above.
Reviewing this list you might notice that delivery notes and cash register tally rolls are included with the other items you might have thought of first.
As I’ve talked to clients over the years, I think the big surprise is specifically around cash register records. Daily totals of monies received must be retained. This total must be cross-referenced to any relevant records (such as cash sheets and stock control reports) that are in use in the business. Where an EPOS system or electronic cash register is used, a complete record of each entry on that register or system must be retained electronically and each entry must include a sequential number that uniquely identifies the entry, together with the date and time of such entry.
These cash register records need to be kept for the six year period also. If you are keeping them on the cash register itself, it would be important to check that before any changes are made or new systems are set up, that all the old reports needed are printed or stored somewhere prior to changing the system.
Electronic records must be recorded and stored in accordance with the ‘electronic invoicing rules’. Ref – Revenue link
The main consideration I would give to electronic invoicing is to ensure the integrity of the storage. Ensure the documents are easy to retrieve if needed, ensure the audit trail for finding the backup you need is easily accessible.
CHANGING ACCOUNTING SOFTWARE
Ensure backups to systems are in place and held off site (if applicable), check they are tested and they work well. In this age of computerised accounting systems in the Cloud, many businesses are moving from older, traditional style accounting packages to new packages. Sometimes the change takes place without discussing it with their tax advisor. In order to ensure you keep all linking documents to back up all tax returns, please talk through a change in computer system with your advisor early to ensure everything necessary is kept.
KEEP A LIST OF REPORTS
You could get a complete list of reports that could be printed off (or saved from) your existing accounting package to support your tax returns. This would be individual to you or your company and your tax returns submitted. Once you have this list from your accountant, it can be used year on year and updated for any new taxes or returns that applied within the year in question.
I believe in saving as I go rather than the once off reporting exercise. Once a VAT return is submitted for example, you could save the backup to that report with the return itself (whether paper or computerised format) and keep that with the other records for six year storage. It will come down to how you work personally and what fits your business. Remember, this also applies to your income tax returns and supporting documents (expenses claimed on those returns).
I hope the above helps you move forward with sorting out your storage needs and clearing out your office space. December and January can be good months to have a review of what is kept and why. If you are like me and need a clear office space to concentrate fully, I hope you take some time out to have a bit of a winter clear out. I like to think when my office is tidy it supports productivity, clarity, creativity and peace of mind.
As mentioned above, do feel free to ask questions if needed.
Wendy Merrigan, Chartered Accountant, Williams Merrigan.
Contact – Wendy@williamsmerrigan.ie