A client's problem has inspired me to write this week’s article. His business is the subject of an inquiry by HM Revenue and Customs. They want to know how some expenses figures were made up, and to see original invoices.
My client’s problem is that he cannot find the records. Our accounting working papers give us some insight into the figures, but not the details of all his separate payments. And of course we would not retain his invoices for the expenses he incurred.
To add insult to injury the laptop on which the business spreadsheets were stored was wiped by an IT engineer.
So I now have my work cut out for me persuading HMRC that the expenses were incurred even though I have little paperwork to support it. There is a legal requirement to keep records, and this client did so. I would hope only the hardest tax inspector would impose penalties because records were kept as required, but then lost due to one reason or another.
The purpose of today’s article is to give you a few tips so that your tax records — whether for a business or just for filling in a tax return — are kept more securely.
Memory sticks — I personally do not like these as they are far too easily lost. However, I recognise a lot of people use them to ship info between the office and home. I implore you not to use them as the only place data is kept. If you lose the memory stick you could leave yourself high and dry. Always have the information backed up somewhere else.
Fire — work on the worst case scenario and consider what would happen if there were a fire at home, or at work. In our office the computer is backed up daily and the backup taken home overnight. Then every few months a CD or DVD is made containing all the office information. This is duplicated. One copy stays in the office (in case the computer goes POP!) and the other copy is stored at home (in case the whole office goes POP!).
Important papers — such as forms, P60’s and bank statements should be protected. Getting copies may be difficult, expensive or impossible. Banks do not keep bank statements for years, so better that you keep your own — especially if you run a business. If in business, keep both business and personal bank statements.
It may be helpful to keep a second copy of really key documents. This could be a photocopy (stored separately) or a scanned copy kept electronically. You could store the latter on a CD, in an email address that you can access away from home, or even on a memory stick. Never, as I say, keep the only version of something on a memory stick.
Laptops — great for spending time at airports — useless as a secure way to store data. As too many civil servants know, laptops are a very popular item for thieves. They are stolen from cars, from restaurants and from private houses. Not only have they a resale value to the thief, they may contain data which is much more valuable than the kit itself. And of course even if the thief doesn’t use or sell your data, its loss may cause you some serious headaches.
Scanners are cheap these days and I have taken to scanning important documents which I may want for a few years. Not only do I keep the paper copy but I also have a scanned copy squirrelled away on the computer. If you want to go paperless then you need to keep your scanned documents in at least two places. No point having everything on your home computer if it blows up or your house is destroyed. Take a CD or DVD copy of all the stuff and leave it somewhere safe — away from the house. Perhaps put it in a sealed envelope and give it to a friend or family member to keep safely. Or keep a copy in your office drawer away from home.
Invoices for businesses are a bit trickier. There can be thousands of them each year, certainly a couple of hundred for many Northern Ireland businesses. If your book-keeping system is computerised then there may be a record of each invoice within it. So long as you back that up appropriately then you have some supporting evidence if you need it.
If your business books are done on paper (which is often quicker than expensive computer packages) then a copy of the books would provide a backup. As with electronic data, see if you can find a different address to store a copy of the books. It might just be a photocopy of the last three months entries stuck in an envelope, but it’s better than having nothing.
If wondering whether a document is worth protecting, consider this. What would be the effect on me or the business if I lost this?
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co — www.huston.co.uk or 028 9080 6080