Maintaining Proper Books and Records No Longer Optional | KPMG | BS

Maintaining Proper Books and Records No Longer Optional

Maintaining Proper Books and Records No Longer Optional

Whether you have just a Business Licence or are also registered for VAT in The Bahamas, you are required by law to keep accurate records of all sales and purchases you make.

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Both the Business Licence Act (the “BL Act”) and the Value Added Tax Act (the “VAT Act”) provide for mandatory maintenance of proper books and records.  Failure to comply with these requirements can result in significant penalties and fines. Business owners and directors should protect themselves by having a good understanding of these requirements.

Generally, all VAT registrants and business licencees must create and retain normal business records. There are no requirements to keep records in a set way and most bookkeeping and computer systems will meet the requirements.

Apart from keeping business records and the special requirements, records must be considered complete, up to date and allow for the correct calculation of the amount of VAT that should be paid to or claimed from the VAT department.

What records should you keep?

Business owners must keep records of every transaction, whether it is money received or money spent in respect of the business, inclusive of all sales, purchases and other transactions as well as the assets and liabilities of the business. 

Accounting records must be kept in the English language and

  • correctly document and explain all taxable transactions;
  • enable the financial position of the business to be determined with reasonable accuracy at any time;
  • allow financial statements to be prepared;
  • enable a VAT registrant to accurately prepare VAT invoices, make accurate VAT returns and allow for the accurate determination of input VAT and the registrant’s entitlement to a claim;
  • enable the VAT Comptroller to determine with reasonable accuracy at any time the tax liability in respect of the registrant’s taxable activities;
  • be maintained using government described format; and
  • include as applicable:
    • tax accounts;
    • purchase and sales ledgers;
    • purchase and sales invoices, whether or not they are VAT invoices or VAT sales receipts, issued for supplies of goods or services acquired or made by the person;
    • records of any VAT invoices for which the recipient of the supply requested a copy to be issued;
    • tax debit notes and tax credit notes issued and received;
    • income and expense accounts;
    • till rolls, audit rolls and tapes or similar records;
    • bank statements;
    • customs documents relating to imports and exports made by the person;
    • records relating to the supply of goods or services to officers, directors, and employees, whether or not the supplies were made for consideration;
    • accounting instruction manuals, systems, programmes and any relevant documentation in use to describe the accounting system; and
    • any other records related to the taxable activity, such as bookings, diaries, correspondence, computer print-outs, audit reports, contracts, or any other accounts or records in any way related to the person’s taxable activity.

Furthermore, a VAT registrant must maintain their records in electronic form —particularly point of sale systems and computerized accounting systems.

In the case of point-of-sale (POS) systems, businesses should have auditable internal controls to ensure the accuracy and completeness of the transactions recorded in their systems. A person should be able to trace back any transaction to the original source or forward to a final total.

With respect to invoices or receipts, they must have transaction numbers and processes to account for voids, cancellations or other changes to number tracking. In the event of a VAT or Business Licence audit or inspection, the VAT officer has the right to take possession of accounting records, documents, computer records and make or retain copies of such records.

Businesses that are not VAT registrants and whose business turnover does not exceed $50,000 per annum are not subject to these record keeping requirements.

What record keeping systems must I use?

How a business maintains its books and records is a matter of choice, provided that it meets the general requirements noted above.  The VAT Comptroller cannot specify that a business use a manual system (e.g. spreadsheets) or a particular accounting software system.  However, the system a business employs should nonetheless allow for accurate and complete record keeping that can easily be reviewed and followed during a VAT or Business Licence audit or inspection.

Whatever system is used, the business should ensure that it can accurately track the VAT collected (“output VAT”) and the VAT paid (“input VAT) in sufficient detail to enable proper completion of the VAT return.  Ideally, the general ledger accounts should record:

The output VAT owing on:

  • sales
  • imported services
  • credit notes received or other similar adjustments

The input VAT claimed on:

  • imported capital purchases
  • imported non-capital purchases
  • domestic capital purchases
  • domestic non-capital purchases
  • credit notes issued or other similar adjustments

Retention requirements

All accounting records must be maintained and retained for a period of five years after the end of the tax period or the date of the transaction to which the records relate. 

In limited cases, records can be destroyed prior to the end of the five year period but only when written permission has been obtained from the VAT Comptroller.  Permission will only be granted if the VAT Comptroller is satisfied that the records are not likely to be required for any tax purposes or audit.

Note that actions brought under the Limitation Act may require a longer retention period.  It is advisable to consult with your professional advisor before destroying any important documentation.

Fines and penalties

Failure to keep reliable accounting records for the five year retention period is considered a “very serious” contravention of the VAT Act.  Fines for “very serious” non-compliance carries a maximum fine of $150,000.

Failure to maintain accounts and records as required under the BL Act carries a fine of up to $5,000 plus an additional $100 for each day the offence continues after conviction.

Note that officers and directors of companies as well as partners in firms are also subject to individual fines and penalties.

References

s.76, 79, 80 Value Added Tax Act, 2014;

Part V – Input Tax Deductions and VAT Documents, Value Added Tax Regulations, 2014

Part VIII – Offences, Penalties, Administrative Fines and Warning Letters

Administrative Fines Schedule,  No. 40, Value Added Tax Regulations, 2014

The Bahamas VAT Guide Version 5: November 1, 2015

VAT Guidance Accounting for VAT Version 4: November 1, 2015

s.9, 26, 27 Business Licence Act, 2010;

Business Licence (Amendment) Act, 2013; effective March 12, 2013.

© 2017 KPMG Advisory Services Ltd., a Bahamian limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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