Many self-employed persons have the misconception that it is not important to keep proper records of their business transactions. The reality that proper records are absolutely essential and usually come at a time when a loan is being negotiated with the bank or when dealing with the Inland Revenue Department.
WHY YOU SHOULD KEEP ACCURATE RECORDS
The Income Tax Act Chap. 15.02, makes it an offence not to keep accurate records and you can be penalised for not doing so. It is also sound business practice to keep accurate records.
OTHER REASONS FOR KEEPING ACCURATE RECORDS INCLUDE
The following provide some compelling reasons for keeping accurate business records:
- Accurate records allow you to be in better control of your business
This will help you in business planning and decision making. You will be better able to monitor cash receipts and payment and budget for major expenditures, income and tax payments.
- Develop a more professional image
Good record-keeping makes it easier to deal with your bank and other financial institutions, especially if you’re trying to finance a project; seeking to expand; or obtaining an overdraft, etc. for your business.
- Reduced costs to you from an IRD audit
Time is worth money and the less time spent searching for records for an audit or for your accountant means money saved!
- You will be able to file an accurate tax return
This means your returns and tax refunds are processed quicker!
- Use your Accountant’s time profitably
Good record-keeping will prevent your accountant from having to do your basic bookkeeping for you. Instead, you can use the accountant’s services for specialized tax, and financial planning advice. Your accountant will not need to keep asking you to verify certain transactions after you send your books in. Your accountant will charge you for any time spent in having to contact you. This also delays the preparation of your business accounts and tax returns.
- Reduce your tax compliance costs
Keeping accurate records from the start can save you time and money in complying with your tax obligations. You will be able to spend more time on other essential business aspects such as:
- Sales and Marketing
- Staff Management and Training
- Production Improvement
TIPS FOR GOOD BOOKKEEPING PRACTICE
The following tips will create a beneficial habit in good bookkeeping practice:
- Make bookkeeping part of your every day tasks. When you’ve established a routine it would be much quicker to work through.
- Keep your bookkeeping up to date. Don’t leave things till the last minute (e.g. filing deadline).
- Avoid interruptions when doing your bookkeeping.
- Try to complete each bookkeeping task in one sitting. For example, when filling in your PAYE remittance make sure you finish it before doing something else.
- Keep your books in an organized manner. You will find yourself working quicker. If you can find the information you need easily.
- Keep trying to find new and improved ways of keeping your books.
HOW LONG MUST YOU KEEP YOUR BUSINESS RECORDS FOR?
The Income Tax Act No. 1 1989 requires that you keep all business records for a period of six years after the year in which the transaction(s) occurred; they must also be in English and kept in St. Lucia.
Even after you cease trading you still have record-keeping obligations. You must keep all your records for a period of six years after the end of the income year to which such books of account or records relate.
WHEN REFERRING TO “BUSINESS RECORDS,” WHAT DO WE MEAN?
Business records are accounting books and source documents which are kept by the business to document its day-to-day income and expenses. The list below includes some of the most commonly used; however, the nature of your business may require the use of others that are not included in the following:
- Receipts and invoices
- Bank Statements and cancelled cheques
- Work Contracts
- Accounting books (including petty cash, cash receipt and payments)
- List of business assets detailing date of acquisition and costs
- Legal documents for the sale and purchase of fixed assets
- Listing of debtors (i.e. people that owe you) and creditors (i.e. people you owe) at year end
These records will be used to prepare your accounting statements, from which your taxable income will be derived.