Keeping business records for partners and partnerships

As a member of a business partnership, you’re taxed on your share of the business profits – so you must keep accurate records. You’ll need these to help you complete your tax return or to answer any questions from HM Revenue & Customs (HMRC) about a return you’ve completed.

You should keep your business and personal records separate. It’s also a good idea for the partnership to have a separate bank account.

It’s the responsibility of all the partners to make sure the partnership keeps accurate records. Every partnership must have a nominated partner who must use the business records to fill in the partnership return.

Basic records you must keep

You must keep records so that you can fill in the return fully and accurately.

Your basic partnership business records must include:

  • a record of all the partnerships’ sales and takings
  • a record of all the partnerships’ purchases and expenses

The nominated partner uses these records to work out:

  • the partnership’s business profit
  • each partner’s share of the profits – this goes on the supplementary partnership pages that you and your partners fill in with your individual tax returns

The more detailed records you keep, the easier it will be to answer any questions that HMRC has about your tax return.

Working in the construction industry

If your partnership works in the construction industry, the partnership may:

  • receive income that’s had tax deducted from it
  • make payments from which you’ve got to deduct tax

Your records should show all the partnership income – including any received after tax has been deducted. The partnership should keep copies of all payment statements showing tax deducted from its income. If tax has been deducted at the higher rate, it’s very important that your ‘verification reference number’ is shown on the payment statement so you can reclaim any overpayment of tax.

Capital allowances

It’s helpful to keep records of purchases and sales of assets that your partnership uses in the business, such as furniture, equipment and machinery, separate from records relating to day to day running costs and sales. This is because you deal with these differently in your tax return and may be able to claim capital allowances for them. Rather than claiming the whole cost at the time you buy, you reclaim the cost over time. You’ll need to keep detailed records to support your claim.

Other records you may need to keep

Different businesses need different types of records. Depending on the type of business, these might include:

  • cash book
  • petty cash book
  • sales and purchase ledger
  • wages book
  • invoices and receipts issued and received
  • electronic records of sales or till rolls
  • details of items not rung through the till
  • details of incidental or miscellaneous income – for example rent for accommodation owned by the business
  • hire purchase and leasing details
  • an inventory of stock on hand at the end of your accounting year
  • bank and building society statements, pass books, cheque stubs and paying-in slips which include details of business transactions
  • details of any private money brought into or taken from the business
  • details of any money taken out of the business for your own or your family’s personal use

All this information will be useful for completing your Self Assessment tax return and answering any questions that HMRC may have about it.

You’ll need to keep business records for up to six years – or longer if HMRC starts a check.

Records related to both business and personal use

It’s important that you keep your business and personal records separate, so that you can work out exactly what assets, goods and expenses relate to your business.

Sales or income

Mistakes are often made when recording sales if:

  • you take stock for personal or family consumption
  • you supply goods or services to someone else in return for goods or services – barter transactions

Even if you don’t record these transactions through a till you still need to keep a record of them. You should note down the goods or services taken or supplied and their normal retail price, and your business profits must be worked out using this value.

Expenditure or outgoings

If you use assets for both business and personal purposes – for example you live in a flat shop premises – you must keep enough records so that you can work out which expenditure relates to business use and which is for private use.

If you use a vehicle for both business and private purposes, it’s usually enough to keep a record of business and private mileage and to split the vehicle running costs in the same proportions.

How long must you keep your records?

You should normally keep your business records for five more years after the normal filing deadline of 31 January. This date applies even if you’ve sent in a paper tax return.

For example, for a 2010-11 return filed on or before 31 January 2012, you must keep your records until 31 January 2017.

But if HMRC sent you – or you sent back – your tax return very late, you may need to keep your records for longer. You need to keep them until the later of:

  • five years after the normal filing deadline
  • fifteen months after the date you sent your tax return

If a check has been started

You may need to keep your records for longer if a check has already been started – in this case you’ll need to keep your records until HMRC writes and tells you they’ve finished the check.

If your records are lost or destroyed

If your business records are lost or destroyed and you can’t replace them you must let HMRC know what’s happened and you’ll have to try to recreate them.

Once you’ve gathered replacement information you use this to complete your tax return. You must tell HMRC whether any figures are:

  • estimated – you want HMRC to accept these as final figures
  • provisional – you are using these until you can confirm the figures (you must tell HMRC when you will be supplying actual figures)

If you make adjustments at a later date and you’ve underpaid tax there may be interest and penalties to pay.