When it comes to record keeping, small businesses that don't use modern accounting software often find themselves in a difficult situation - They either have a shoebox stuffed with receipts and invoices or they end up with misplaced or lost records. You know you want to avoid both, but how do you know which records you should keep for the ATO? And what is the most effective way to keep them?
What Records to Keep
Small businesses are required to keep certain records for reporting purposes. These are the records you'll need to complete your tax return and activity statements, and if there is ever a question, prove the details of a transaction. If you don't keep all your records, or you end up with some missing, not only will it be more difficult to reconcile what you originally reported, but you could end up with penalties!
In addition, you need to keep these records for at least five years, and they must be in English (or in a form that can be converted into written English). This includes income and sales records showing at minimum the date and amount for each sale, purchase and expense records, bank records, asset purchase records, contracts, and year-end tax records.
If your business is registered for GST, you'll need to have tax invoices in order to claim your GST credits. These invoices must include the date, name and ABN of the supplier, quantity and price of sale, and a description of the item. Make sure these are included on any invoices you issue to your customers as well. Most importantly, note on the invoice what GST was paid. It's also mandatory to keep employee wage information, PAYG withholding records, and records relating to fuel tax credits.
Receipts in the Cloud
When starting a small business, record keeping can seem like a huge and confusing task, but if you set out using a proper system, and manage transactions as they occur, you'll find it's much easier to stay up-to-date. The best way to stay organised is by using cloud accounting platforms like Xero. While there are many advantages to doing your accounting in the cloud, being able to store documents digitally, search your records, and generate reports are a few of the most useful.
With many businesses today trying to maintain paperless environments, did you know it's perfectly acceptable to keep a photo or a scan of a receipt for tax purposes? As long as the documents are readily accessible when needed, digital copies are a legal and efficient way to store your records for the required five years and beyond. That's why systems like Xero enable you to digitally attach your invoice or receipt to the record of a transaction. They even have a mobile app so you can take photos of your receipts at the time!
Another advantage of electronically-stored documents is that, unlike paper documents, these digital documents are searchable, allowing you to more efficiently find the information you need (if you ever have to remember what that expense a few months ago' actually was). Add to this the convenience and security of storage on the cloud, and you have got a system that is easy and convenient to use - available anytime, anywhere.