From Manuscript Ledgers to Digital Records

When I started out, as a trainee-chartered accountant, I had my trusted Casio Calculator – we didn’t have computers and neither did the clients. Computers were a rarity and business records were recorded by hand. Back in the day, one came across the most amazing manuscript ledgers and cashbooks (for small traders to large businesses to national institutions) – as well as some awful ones too.

As time went by, I soon realized that gathering evidence to support personal injury earnings loss claims for self-employed claimants posed similar headaches for lawyers as it did for accountants trying to make sense of trader’s records.

Paper business records meant that gathering and analysing sales and costs data has been time-consuming and ‘fiddly’. Having eventually got your client to ‘drop of’ an assortment of cashbooks, sales & purchase day books, duplicate books and bags of invoices – there is then the challenge of copying the documents (to pdf format). All of that is before one actually tabulates and analyses the data contained in this assortment of records, in order to evidence (or investigate) the claimant’s losses.

Until more recent times, taxpayers have had free-range to choose the form and nature of their records. So Simplex cash books, sales day books, A4 & A5 diaries, carbon copy sales invoices and files (or bags) of paper invoices, receipts etc. have remained a feature of the records of smaller self-employed, sole traders.

Introducing Making Tax Digital

Many small business owners still cling to their traditional methods despite the numerous advantages of using digital accounting systems. These systems can save time on financial administrative tasks and provide insightful, real-time, performance data to inform business decisions.

HMRC intends to require all self-employed taxpayers to digitalise their record keeping. This initiative goes by the catchy phrase of “Making Tax Digital” (or MTD).

MTD is already in place for limited companies as well as partnerships and the self-employed that are registered for VAT (current threshold: sales > £85,000). Such business entities are already required to keep their business records in a digital format, that will interface with HMRC’s systems. The implication being that business records held by HMRC will be no more than 3 months (a quarter) out of date.

HMRC was to have made MTD mandatory for all self-employed taxpayers from April 2024 – but recently they moved this date on by two years, to April 2026.

Benefits for managing PI loss quantum

What this means, however, is that the end is in sight for all those ‘cumbersome’ paper trading records. Soon all self-employed businesses will have to keep digitalised records.

In future we can expect the smaller self-employed claimants to be using web based accounting systems, such as: Xero, FreeAgent, QuickBooks, Sage etc. across the board.

The shift to digital record-keeping makes it easier to obtain current trading data for self-employed injury claimants. Simply gain access to their accounting system and you can access sales, costs, and wages data with just a few clicks.

Having gathered the raw trading data in a digital format, it can then be summarised, analysed and incorporated into schedules – this should give high quality evidence to support earnings loss claims.

If you are a personal injury lawyer struggling with getting to grips with a claimant’s self-employed business records in order to quantify their claim or would like some help interrogating their trading data to better understand lost earnings, then do get in touch. We are always happy to chat over the best approach to take.

At Formby Forensics, we’re passionate about helping our clients and we’d love to chat with you about the best approach to take. Don’t hesitate to reach out – we’re always happy to help!

Richard Formby FCA MAE

Formby Forensic Services

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