Why record-keeping is important
It is essential that you keep very good records of all your business transactions. This is important for several reasons:
- HM Revenue & Customs (HMRC) requires you to keep certain records for inspection for six years and may check your records from time to time as part of their compliance procedures. There is an HMRC guide to business record keeping for the self-employed on the Gov.uk website. The guide explains which records you have to keep, how long you have to keep them, and what to do if they get lost or destroyed
- if HMRC decides to investigate the business it will be of real assistance to your accountant if you have kept good records of not only your sales and purchases but any theft that you suffer also. If you offer any form of catering facility (a café in your gallery, for example) you should try to keep an accurate record of the amount of wastage that you incur. You should keep comprehensive records of the selling price of all pieces sold and the amount of commission that you retained. It will be useful if you have an explanation for all the times that you take a smaller than usual commission percentage
- you need to know what works you have in stock from which artists, and you must keep an accurate record of money owing and paid to artists for sales of their work to avoid later disputes
- you need to know how the business is doing at any time - well kept records will tell you
- to know when you need to reorder your stock
- you will need to keep accurate records of any services you offer, such as framing or restoration work
- you need to be sure that untrustworthy staff are not stealing from you. Be especially careful if you are not able to supervise staff on a day-to-day basis
- if the statutory single-use carrier bag charge applies to your business you may be required by law to keep certain records about the bags you supply to customers (smaller businesses in Wales and Scotland are exempt from the record keeping requirement, and businesses in England with fewer than 250 full-time equivalent employees are exempt from the charging requirement altogether)
Make sure that you note down all income the business receives, and all the money that is spent, even if it is only small amounts. You should be able to show from your records how all income received by the business can be traced through until it is either spent or banked. Ask yourself if you would be satisfied that the records would reveal any dishonesty if they were written up by an employee.
If you take any goods from the business for your own personal use you should keep a record of these.
Your accountant will be able to give you advice on how best to keep records. You might decide to go for a computerised system, which will help your accountant to draw up your accounts at the end of the year. Don't forget that under HMRC's Making Tax Digital (MTD) initiative you'll need to keep your VAT records digitally if your taxable turnover is above the VAT registration threshold. You can find out more about MTD on the Gov.uk website.