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Why contractors need to keep good business records

Why do contractors need to keep good business records
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    A common mistake contractors make is not keeping business records, which can lead to problems later on. A good business record will actually help you stay organised and save you money in the long run.

    Check out this article to learn why contractors need to keep on top of their accounting by maintaining good business records.

    What is record keeping for contractors?

    Record keeping for contractors is the process of creating and maintaining records of their work. This can include records of projects, invoices, contracts, and other important documentation.

    Why contractors need to keep good business records

    Good record-keeping helps to ensure accuracy and accountability throughout the project lifecycle.

    They need this information for tax purposes

    The HM Revenue & Customs (HMRC) requires businesses to provide accurate and up-to-date records to calculate the correct amount of tax owed. This means that businesses must keep track of their income and expenditure and any other relevant information to ensure that their tax return is correct. Failure to do so could result in fines or other penalties.

    It can be a lifesaver in case of auditing

    Auditing is an important part of any business, and contractors must be prepared for it. Keeping good business records can be a lifesaver in this situation, as it can help to prove your expenses and income. Without good records, you may find yourself in a difficult situation if your company is questioned.

    To assess how well your business is doing

    Another reason why contractors need to keep good business records is that it can help to assess how well your business is doing for several reasons:

    • First, they can provide insights into your revenue and expenses. This information can help track your progress and identify areas where your business may be overspending.
    • Second, business records can also help you to understand your customer base. This information can be used to target marketing efforts and improve your overall customer service.
    • Finally, business records can also help you to identify potential areas of growth. This information can help you expand your business and reach new markets.

    Good business records can help you avoid disputes with employees and customers

    Good business records can help you avoid disputes with employees and customers by providing documentation of what was agreed upon and what was actually done.

    For example, if you have a meeting with an employee to discuss a project, follow up with an email documenting the discussion and the agreed-upon tasks. This will provide a written record in case there is a disagreement later on.

    Good records can also help you track customer satisfaction levels and identify any areas of concern. By keeping detailed records, you can avoid misunderstandings and provide a clear paper trail in case any disputes arise.

    Accurate records are essential when applying for loans

    Business records are essential when applying for loans or other financings because they provide documentation of your business’s financial history.

    This history can include information about your business’s revenue, expenses, and assets and your personal financial history. This information is important to lenders because it helps them assess your risk as a borrower and determine whether or not you are a good candidate for a loan.

    To track how much time they are spending on each project

    This information can be useful in budgeting and deciding how to allocate resources. Additionally, it can help businesses identify areas where they may be wasting time and adjust accordingly.

    Having accurate records of time spent on projects can also help businesses track their progress and meet deadlines.

    What documents should a contractor keep?

    • All contact information for the client, including address, phone number, email, and any other relevant details
    • The scope of work to be performed, including any deadlines or milestones
    • A record of all communications with the client, including phone calls, emails, and meetings
    • Any payments received from the client, including invoices and receipts
    • Any contracts or other legal agreements between the contractor and the client
    • A schedule of work to be completed, including start and end dates
    • A record of any problems or issues that arise during the course of the project, including how they were resolved

    FAQs

    How long should you keep business records?

    Companies are required to keep certain records for a minimum of six years. This includes financial records, such as invoices and bank statements, as well as records of any legal agreements. Companies may also choose to keep other records, such as minutes of meetings, for longer periods.

    How long should I keep bank statements?

    If self-employed, you should keep your bank statements for at least five years. This is because the HMRC may ask to see them as part of an investigation into your tax affairs. However, it is a good idea to keep them even longer if possible, just in case you need them for any other reason.

    How do I ensure my records are accurate?

    One way to do this is to keep a detailed log of all work completed, including the date, time, and location. This information can be used to create invoices that accurately reflect the work done.

    Additionally, it is important to keep track of any expenses incurred while working, as these can be deducted from your taxes. By keeping accurate records, you can ensure that you are being paid fairly for your work and that your taxes are filed on time.

    What are the consequences of not keeping good records?

    You may miss out on payments or be liable for damages if you can’t produce records to show what work was done. You could end up owing the government a lot of money in taxes, and you could also get in trouble with your clients.

    Not to mention, if you’re ever audited, not having good records will make it a lot harder to prove your expenses and income. So, it’s definitely in your best interest to keep good records!

    About WIS Accountancy

    As a full-service accountancy firm, we offer personalised accountancy, including wealth and pension management, Xero accounting, SEIS (Seed Enterprise Investment Scheme), tax advisory and assist businesses with R&D tax credits.

    Aside from accountancy, we also help customers with business insurance (WIS Protection) and mortgages (WIS mortgages).

    Fill out the contact form or call us at 0203 011 1898 for more information.

    Learn more about contractor accounting by downloading our free guide:

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