Invoices are necessary for any organisation that transacts with other entities. It serves as a record of sale that verifies the payment agreement between clients and the business. Business invoices must be kept and recorded because it also serves as proof that an exchange of money and goods or services has taken place. To learn more about the importance of business invoices and why you need to keep yours, read our guide below.
What Is an Invoice Used For?
Invoices are used for a number of reasons. One, it is a sales agreement between you and a client. You issue an invoice to be paid on time because the document outlines the payment terms, amount wed, due date, and services rendered.
Accountants and bookkeepers need your invoices to record financial transactions, prepare tax returns, and analyse the business’s financial health. These invoices serve as proof of your business’s financial history. Invoices are also required for tax purposes.
Aside from accounting, invoices serve as a business’s protection from lawsuits. It outlines the timeline, paid amount, and obligation of both parties. Lastly, are important for keeping track of inventory.
Keep the invoices and receipts for personal earning, billings sent out to others, personnel PAYE documents, expense and overheads, and VAT records. Use online applications to streamline the process of recording all receipts.
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Keeping Business Receipts
The general rule for sole traders in keeping business receipts is they must be kept for five years, while limited companies must keep them for six years. The counting starts not on the date on the receipt but from when you send your income tax return recording these receipts.
Basically, it begins on January 31 after the tax year ends. The reason is January 31 is the last day of submitting income tax returns for the previous year. However, there are some people who have to keep their recipes for an extended time. These are the people who have:
- Been investigated by HMRC in the past
- Filed their tax return late
- Persons under investigation
Do note that the government can conduct a tax investigation on any business or individual if they suspect them of tax evasion. Remember that tax evasion is illegal and punishable by the law. Keep your records for a longer time, just to be safe.
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Claim an Expense Without a Receipt
There is a way to claim an expense without an invoice to give factual information about the item purchased or acquired. You must still own the item, and you need to provide the right details. A bank statement can also serve as proof.
What Happens If You Lose Your Receipts?
If you lost your receipts due to unfortunate events, you need to immediately inform the government. They will advise you on your next moves. They may allow you to give an estimate of your return.
Business invoices are used for a number of reasons. One of them is for tax compliance. Every business must submit its tax return to avoid tax evasion, and with this submission must come receipts, invoices, and other documents. There are many cheap accountants in London that can help you with tax returns.