As accountants we know that maintaining accurate accounts is imperative for our clients. But recently, we have been reminded of just how crucially important this is.
The Insolvency Service confirmed that in August another 90 rogue directors had been disqualified. A total of 509 directors have been disqualified so far in 2016/17, of which 77 have been by way of a court order, and 432 individuals have given disqualification undertakings (the administrative equivalent of a disqualification order, but without court proceedings).
Significantly, in relation to two companies, the disqualifications arose from a failure to keep or produce accounting records.
It’s a legal requirement
Record keeping standards are a requirement of the Companies Act. But significantly, HMRC also stipulate that all businesses, regardless of their size, are legally required to maintain accurate and up-to-date financial records. Failure to comply could result in a fine of up to £3,000 so, with nearly half of all small businesses falling victim to an issue of record keeping (according to research by HMRC), it really is crucial that all business owners remain in control of their finances.
If a business fails…
If a business fails, a lack of accurate records will render a proper investigation into its finances a fruitless task for any liquidator, and if directors think that “losing” the records means they can get off scot-free, they are sorely mistaken.
Typically, the following three excuses are attempted when failing to hand over adequate records to a liquidator:
– No proper records were kept.
– Proper records were kept but I no longer have them.
– Proper records were kept, and I have them, but I’m not handing them over.
Each of these is a criminal offence, potentially punishable by a term of imprisonment.
No proper records were kept
According to the Section 386 of the Companies Act 2006, the penalty for failing to keep proper records is an offence on the part of every officer of the company, carrying a maximum penalty of two years in prison (and/or a fine).
Proper records were kept but I no longer have them
Accounting records have to be preserved for at least three years in the case of a private company (six years for a public company), under Section 388 of the Companies Act 2006. Once again, failure to do so is an offence by each officer, and again punishable by up to two years behind bars (and/or a fine).
Proper records were kept, and I have them, but I’m not handing them over
Section 208 of the Insolvency Act 1986 requires officers of a company in liquidation to deliver up to the liquidator all books and papers in their custody or under their control. The penalty for failing to “deliver up” is even more severe – up to seven years in prison (and/or a fine).
…and if a business doesn’t fail
Creating and maintaining thorough financial records is an integral part of running any successful business. Good record keeping not only provides a real-time view of a company’s financial health, it also helps to minimise the risk of being hit with a hefty fine /penalty by the taxman. Perhaps most importantly, it allows the management of a business to actually manage – to plan and make strategic decisions based on accurate, up-to-date financial information and to analyse data to see what area/ products are making profit ; compare performance to budgets and manage costs or incentives based on results.
If you are in any doubt about your own financial record keeping, ask your Burton Sweet adviser for guidance. We have a number of ways to help you.
