Tax Planning for Doctors & Dentists
This month Michael Lansdell, from Lansdell & Rose Chartered Accountants, talks about the importance of keeping the correct accounting and tax records for your limited company. It includes a Case Study of a sole director who failed to do so and was issued a seven-year trading ban!
The views expressed in this article are specifically those of Lansdell & Rose Accountants.
Seven-year ban for sole director
A sole director failed to maintain proper accounting and tax records on behalf of his limited company. Subsequently, he has been disqualified from trading for seven years!
The scenario
In January 2017, Mr P, was issued a trading ban by the Insolvency Service for failure to keep suitable accounting records for his limited company.
In his case, failure to determine the nature of payments totalling over £66,000 demonstrated that he was acting irresponsibly regarding his business commitments.
Interestingly, it was only a period of six months that records were not maintained.
This shows that it is not acceptable to drop the ball even for a relatively short period of time.
Even if your discrepancies don’t equate to the same volume as Mr P, you may still be penalised with a ban, or a hefty fine for your errors.
At the very least, if you are unable to prove your income and expenses transactions, your tax will be re-calcaulted based on the evidence that does exist. This can result in large additional tax payments, simply due to lack of available information.
Keeping the right records for your limited company
Having your own business is a responsibility. Even if you are trading as self-employed it is essential that you follow regulations, as consequences can be detrimental to your business and tax position.
HMRC continue to find ways to penalise those that do not adhere to the rules.
If your company, or personal tax return is subject to a HMRC inspection, then you will be required to provide evidence of all your business income and expenses for tax purposes.
To be compliant, directors must ensure they keep clear records of the following:
- All income generated by the company
- All money that comes in and goes out of the company
- All expenses where tax relief is being claimed
- Any expenses that are paid for from the limited company bank account, even if personal
- All assets owned by the company
- All debts owed by the company
- All debts owed to the company
- The stock that the company owns at the end of the financial year
- The stocktaking detail used to work out the final stock figure
- All workings that support the financial accounts, including:
- All income receipts, invoices, sales books, contracts and till rolls
- All purchase orders, delivery notes, invoices and statements
- All petty cash books
- All relevant bank statements, credit card statements and correspondence.
How long do you need to keep records for?
At the very least, company accounting records need to be kept for six years from the end of the last financial year.
This includes full details of the list above, including all income, expenses, assets, debts and stock.
This may seem tedious, however failure to provide evidence of each business transaction if you are subject to a HMRC inspection, could result in consequences similar to Mr P.
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