As we are fast approaching the end of another financial year in Australia, it is an opportune time to review and tidy up our business records ahead of having our financial statements and tax returns prepared. This is not a task that any of us enjoy. If anything, this would have to go to the top for procrastination! BUT you know you must! So, let’s keep this article short and sweet. You have a business to run. The last thing you need is to lose your focus on your business because you’re buried in paperwork. My view is do the bare minimum you can get away with while still comply with the tax legislation.
The Tax Office require businesses to keep sufficient records so that they can work out how much to tax us! It doesn’t matter which country you live in – you can be assured that is a requirement. Generally, business records are to be kept for a certain period (it varies from country to country) from the time they are prepared, obtained or completed. Just check with your accountants what your period is and make sure you comply with that.
You can be prosecuted if you do not keep adequate records about your business. Generally, you must keep a record of your business transactions which enable these transactions to be traced and checked through from start to finish. These records would generally include invoices, receipts, till tapes, bank statements and in the “old days” before digital banking, it would include the cheque butts and bank deposit books. That would be the bare minimum. The rule is – the Tax Office wants to be able to work out how much they can tax you!
RECORDS YOU MUST OR SHOULD KEEP
Let’s consider a typical business situation and consider what can we get get away with? Most businesses have fully computerised and use accounting software such as MYOB or Quickbooks. It has made it so much easier to comply with Tax legislation and reduced much of the paperwork (in fact, I’m not aware of any business that still rely on good old fashion manual cash books) What’s the bare minimum we must do to meet our tax obligations?
If you have not yet computerised, you must if you want to save yourself a lot of headaches and heartaches. It does not have to be expensive. Software such as Quickbooks and Xero are relatively inexpensive and will save you a lot of money. MYOB, Quickbooks and Xero all have discounted honeymoon prices and any decent bookkeeper should have no problem working any of the three options.
The Tax Office in Australia now accept that taxpayers in business can store records of sales, purchases, receipts, vouchers, credit notes, delivery dockets, etc. electronically, as long as the records are in a form that Tax Office auditors can access and understand.
So, I would recommend that you digitise where you can. Whilst you might have to pay for extra gigs to store the digital records, it will save you physical storage costs and time – not to mention, you will not have to pay a document destruction company to destroy your documents. For example, it is easier to search a digital invoice than it is to go through lever arch files to look for an invoice.
Digital storage may take the form of imaging those records onto an electronic storage medium. Where paper records are imaged and stored electronically, they should be:
- read only
- retained for the required period
- have adequate back-up control, and
- be able to be retrieved and read at all times by Tax Office auditors
Generally, original paper records that have been imaged onto an electronic storage medium need not be retained. This would even apply to car logbooks – so now you can just enter your log book on to a computer spreadsheet and not have to sign the log book as long as you can meet the electronic storage requirements.
Be mindful that different countries will have different rules – however, it’s likely that most will accept what the Australian Tax Office auditors will accept. However, do confirm with your own accountants before you throw away your paper copies!
If all that sounds too hard, then I would still recommend that you computerise and outsource the record keeping. I’m sure you did not start your business to become a unpaid employee to the Tax Office. You started your business to fulfill your passion, not to do endless paperwork.
In my last article I wrote about how you can save money on your accounting fees by using a End of Financial Year Records Checklist when you meet up with your accountants. Together with the digital or physical records of sales, purchases, receipts, vouchers, etc (which your accountants would not normally ask to see), that checklist can also act as a checklist for the typical information you will need to retain to ensure that you can meet Tax Office audits. Work on the basis that if your accountants need it to be able to prepare your tax at the end of the financial year, then the Tax Office may want to see it too.
Bare minimum works for me LOL. With that I can ensure that I do enough to meet my tax obligations without drowning myself in paperwork.