What exactly am I meant to keep as business records? And for how long? First, let’s review what Inland Revenue have set out for records you must keep. Apart from your business bank statements, and those Invoices or bills you have sent out- here’s the other records you need to keep. These will be important to keep, if you are claiming business expenses …
For items for $50 or less:
To claim them as business expenses you do not need a ‘Tax Invoice’ but you still need to retain some ‘evidence of payment’ – it may be a cash sale docket or till receipt. Like what you get from your local dairy or stationery stores for small items.
If your purchase is over $50:
The requirements are stricter. Inland Revenue requires your records should have the following evidence for your business expense claims:
- The words ‘Tax Invoice’ must be clearly marked on the document (unless the seller is not registered for GST, in which case ‘Invoice’ is acceptable. If they are GST registered, their invoice must show their GST number).
- The name and the address of the supplier.
- Date of the sale, and a description of the goods and services supplied, including quantity or volume where applicable.
- Total amount charged – and a clear indication of whether this amount is inclusive or exclusive of any GST charged when applicable e.g. Total $123.21 GST inclusive, or having separate lines: $100.00 + GST $15.00 = Total $115.00
If you are GST registered and processing GST returns, then the necessity for retaining evidence for accurate calculations to support your filed GST records is important.
There is a slight anomaly – Inland Revenue states:
“For GST you do not need to hold a tax invoice for items costing less than $50, but you do need to maintain a record of such payments. For Income Tax, you should have invoices for all expenses, whatever the amount.”
So, bottom line, let’s go with keeping all your receipts, as you will definitely be filing Income Tax returns.
For how long? Seven years. Yes, regardless of whether you cease trading or on sell the business, you need to retain your own business’s records for seven years.
“But I’m drowning, and struggling to keep everything tidy” …
“I just haven’t time to keep them filed”…. “Where am I going to keep them all?”
“I keep losing my bits of paper when I’m out and about on business…”
Good news. Inland Revenue now accept accounting records and supporting documentation in electronic format. In fact, not surprisingly, they encourage it! Here’s a statement from their website:
“We encourage you to record and store your data electronically (disk, tape or other electronic media) as this lets us carry out the more efficient computer-assisted audits.”
Here, we really recommend Xero and MYOB, the newer modern accounting software programs are very useful and practical for small/medium business owners. They offer easy features to enable uploading of your digital business transactions to store them as links, alongside relevant accounting transactions within the accounting records. It makes for a clear tidy system of tracking and detailing your business transactions over the year.
But how do we upload the data? Scanning and photo shots are acceptable. Make sure the images are clear and capture the required data the Inland Revenue requires – the full page. There are some new applications available for ease of capture of business transactions via electronic images to be incorporated into the newer accounting systems today – with Receiptbank for example, you take a photo of your receipt and it uploads the photo and enters the details of the transaction into Xero too once you’ve checked details are correct. (That’s pretty handy – how many of us leave our receipts in our purse, or in our car for days meaning to put them into the office records … but mislay them?).
Another plus of having your data records linked with the accounting transactions, is your business records are easily searchable. “We need to reassess our retail price, let’s recheck what courier costs were for those imported materials back in March from X supplier were?” A quick search online, and you can bring up the attached digital record of the invoice or receipt of goods from the supplier.
Remember two other conveniences with using newer Cloud based accounting software? As they store data off base on remote servers – there’s less worry of damage to your records through accidental or natural events eg fire or flooding. Secondly they feature the mobile accessibility of being able to access your financial records from different locations. (See our previous blog on The Cloud)
What you do need to do, is ensure both security and maintenance of your current and historical data is reviewed and completed over the required time frame of seven years to keep it accessible.
So are you ready to kill those paper piles? Get in touch and we can help work with you on improving your existing accounting processes … we may be able to recommend compatible applications or suggest better accounting software applications that make managing your business records easy.
Check out these links for further information:
- IRD – record keeping
- IRD – Record keeping (for GST)
- Xero Accounting Software
- MYOB Accounting Software