Record Keeping

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Financial Record Keeping – what you need to know

So, you’re setting up your own private practice...will you have a separate office, with employees and several consulting rooms? Or will you simply be seeing one or two patients a week from home, or renting a consulting room?

Whatever your plans, you must remember one thing:

However small or large, your private practice is a business that will be accountable to the tax authorities, and in some cases (if it’s a limited company) to Companies House, who will want to see annual sets of accounts.

Don’t let this scare you. For sole traders and even partnerships, keeping records is quite simple. For private limited companies, it is a bit more tricky. Whatever the structure of your business, good practice management software will help with the financial reports.

Record-keeping is good!

It’s not just a chore to keep you out of trouble with the authorities. Keeping accurate records:

  • saves you time, because clear records are better than a jumble of paper
  • saves you money, because you won’t pay more tax than you need
  • keeps you up-to-date with how much you owe, and how much you are owed
  • helps you to see where your business is going, and plan for the future
  • helps you to deal with queries (however rarely they occur) quickly and with confidence

Tip: if you’re just starting out, the Collins Essential Accounts Book is a good place to begin keeping records.

Despite the benefits that good record-keeping bring, it’s surprising how many businesses don’t keep accurate records. A recent review carried out by HMRC discovered that 39% of businesses had some issue with their record-keeping.

Here’s our guide to record-keeping for the most common types of business structure. If you haven’t yet read our articles on business structure, that should be your next step.

Sole traders

You need to keep a record of:

  • all receipts and expenditure (a purchases ledger)
  • all services provided and invoiced (a sales ledger)
  • all money, cheques or online payments received for services (a cash book)
  • VAT records (if you’re registered - find out more here)
  • payroll records if you employ someone
  • records about buying, improving, selling or disposing of assets like property and office equipment

Partnerships

You need to keep a record of:

  • all receipts and expenditure (a purchases ledger)
  • all services provided and invoiced (a sales ledger)
  • all money or cheques received for services (a cash book)
  • VAT records (if you’re registered - find out more here)
  • records of how the profits are shared between partners
  • payroll records for any employees
  • records about buying, improving, selling or disposing of assets like property and office equipment

Limited Liability Partnerships

You will need to keep a record of everything a partnership does, but you will also need to file your accounts at Companies House, and so we highly recommend the services of a suitably qualified accountant.

Limited companies

Limited companies are liable for Corporation Tax. You need to keep a record of:

  • all receipts and expenditure (a purchases ledger)
  • all services provided and invoiced (a sales ledger)
  • all money or cheques received for services (a cash book)
  • VAT records (if you’re registered - find out more here)
  • records of how the profits are shared between shareholders
  • payroll records for any employees
  • a record of your company’s assets
  • records of any stock that you hold
  • records about buying, improving, selling or disposing of assets like property and office equipment

Every year you will need to file your annual accounts with Companies House.

How long should you keep your records?

You should keep financial records for at least six years. This doesn’t apply to all types of records, but is a good general rule and will cover all bases. It is best to keep printed copies in a safe place and make sure you back up your electronic copies. Also, don’t forget the requirements of the ICO under the Data Protection Act - find out more here.

Software - how it can help

Keeping records is greatly helped by the use of computer programs such as spreadsheets and accounting packages. Much of the work will be automated, and you will be able to see your accounts clearly and get key information for your tax returns. A computer accounting system generally has the following features:

  • input and printout of financial documents such as invoices
  • recording of suppliers’ invoices
  • recording of money paid into the bank
  • recording of payments to suppliers and expenses
  • payroll processing

Record keeping - your options

We’ve created a simple document giving the pros and cons of different types of record keeping - from keeping a hard copy, to using accounting systems and practice management software. Members of the Private Practice Hub can download it by logging in here. You can become a member here (it’s free).

Want more info?

We strongly recommend that you check with your accountant and visit the HMRC website to find out more about the records that you need to keep: http://www.hmrc.gov.uk/record-keeping/index.htm