books-for-diligence

---
name: books-for-diligence
description: Turns the books you already have into a records file a buyer's accountant can check without ringing you: the accounting records the law already requires listed against what you actually hold, the years covered set at the longest retention rule that touches you, a trace line from every headline figure to a bank statement line or a till reading, the owner specific costs listed separately instead of quietly netted off, the VAT position, the PAYE position and the stock position written down, your own Companies House record read the way a buyer reads it, and a plain list of what is missing and cannot be produced. Use when you are one to three years from selling, retiring or handing the business to family and nobody outside the business has ever looked at the accounts.
---

# A records file a buyer's accountant can tie back to source without asking you a single follow up question

You give this your last three or four years of accounts, your bank statements, your till exports, your VAT returns, your payroll records and your stocktake sheets. You get back a records file: what the law already requires you to hold set against what you actually hold, a trace row for every headline figure naming the document it comes from and where that document lives, the owner specific costs listed one by one with evidence behind each, the VAT and PAYE and stock positions written down as facts, your own public filing history read as a stranger reads it, and a gap list naming every record that cannot be produced. It will not restate your accounts and it will not create a figure that is not already in a document. If the sales number cannot be followed from a till reading to a bank credit, the file says so rather than smoothing it, because a buyer who finds the gap themselves stops trusting every other number in the pack.

## What it does

1. **Set the period the file covers at the longest retention rule that touches you, not the shortest.** Three rules point at three different dates and owners routinely keep to the shortest by accident. Companies Act 2006 section 388(4) says accounting records "must be preserved by it (a) in the case of a private company, for three years from the date on which they are made". HMRC is longer for anyone taxed through self assessment: "You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year." A buyer's solicitor will normally ask for three full financial years of accounts plus the current year to date, and their accountant will want the bank statements behind all of it. Write the start date and the end date on the front of the file and name the rule that set them. If a year has already gone in the skip on the strength of the three year rule while the tax records ran five, record that on day one rather than discovering it in week six of diligence.

2. **List the records the Act already requires and tick off, line by line, what you actually hold.** Section 386(1) is one sentence: "Every company must keep adequate accounting records." Section 386(3) says they must contain "entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place" and "a record of the assets and liabilities of the company". Section 386(4) adds, for a business dealing in goods, "statements of stock held by the company at the end of each financial year of the company" and "all statements of stocktakings from which any statement of stock as is mentioned in paragraph (a) has been or is to be prepared". A kitchen, a bar and a shop all deal in goods, so that paragraph is not optional decoration. For a sole trader or partnership the list is HMRC's: "all sales and income, all business expenses, VAT records if you're registered for VAT, PAYE records if you employ people, records about your personal income". Tick each requirement as held, partly held or not held, and send every not held straight to the gap list at step 10.

3. **Build the trace, and record the trace rather than the figure.** For each headline number in each year, write five things: the figure, the line of the accounts it sits on, the source document it comes from, where that document physically or digitally lives, and the name of the person who can produce it inside a working day. A buyer's accountant does not want your sales total. They pick one ordinary week and follow it: Z reading to till export to card settlement to bank credit to the sales ledger. Do that yourself first, on three weeks chosen at random across the period, and write down where it broke. Every break you find yourself is a question you answer once, in your own words, at a time of your choosing. Every break they find is a question about whether the rest of the pack is honest.

4. **List the owner specific costs one by one instead of netting them off into a tidier profit.** The car, the phone, the family member on the payroll who does six hours, the flat above, the private medical, the holiday cottage insurance riding along on the business policy, the dog food. For each: the amount, the year, the account line it currently sits in, and the document that proves it is what you say it is. Do not adjust the profit and do not total the column. A list of owner costs with documents behind each row is something a buyer's accountant can price in an afternoon. A profit figure you have already normalised is something they have to take apart, and the taking apart is the part that costs you goodwill. This list is also what your own accountant needs if a Business Asset Disposal Relief claim is coming, because that relief turns on both of these applying "for at least 2 years up to the date you sell your business: you're a sole trader or business partner; you've owned the business for at least 2 years", and the records that prove those two years are the records you are assembling here. Note the rate on the front page and re-check it on the day of the disposal: the relief means you pay "18% on all gains on qualifying assets disposed of from 6 April 2026", so a disposal made today, 23 September 2026, falls in the 2026 to 2027 tax year and is taxed at 18%, and that rate has moved twice in two years.

5. **Write the VAT position down as facts, and settle early whether the sale is expected to be a transfer of a going concern, because that is not a choice.** Record the registration number, the effective date of registration, the scheme you are on, the date and value of the last return filed, and any assessment, surcharge or open enquiry. Then read VAT Notice 700/9 and put its first instruction on the page: "It's important to be aware that the TOGC rules are mandatory and you should establish from the outset whether the sale is a TOGC", reinforced at paragraph 2.1 with "The TOGC rules are compulsory. You cannot choose to 'opt out'." Getting it wrong is expensive in a specific way, because where VAT is charged on a sale that was in fact a TOGC the buyer "will not be able to reclaim this amount as input tax". If you and the buyer intend to keep your VAT registration number, note the form now: "Form VAT68 must be completed with an application to register for VAT, if the seller and buyer of a business want to apply to transfer a VAT registration number." Name the person, your accountant or your solicitor, who will make the TOGC decision, and write their name beside it.

6. **Assemble the payroll file now, because TUPE will demand most of it on a short clock anyway.** On a sale of the business and its assets, regulation 11(1) of the TUPE Regulations 2006 requires that "The transferor shall notify to the transferee the employee liability information of any person employed by him who is assigned to the organised grouping of resources or employees that is the subject of a relevant transfer, (a) in writing; or (b) by making it available to him in a readily accessible form." Regulation 11(2) sets out what that is: the identity and age of the employee, the section 1 written particulars of employment, disciplinary and grievance action within the previous two years, court or tribunal claims brought within the previous two years and those the transferor has reasonable grounds to believe may be brought, and any collective agreement that will have effect after the transfer. Two clocks run and both are short: regulation 11(3) says the information must be "as at a specified date not more than fourteen days before the date on which the information is notified to the transferee", and regulation 11(6) requires it "not less than 28 days before the relevant transfer". A payroll file assembled in the week of exchange is assembled badly. Build it now and refresh the fourteen day snapshot later.

7. **Write the stock position down, with the sheets, because stock is the one number settled in cash on the night.** Record the date of the last full count, who counted it, the basis of valuation, and where the counting sheets are. Section 386(4) already requires the year end stock statements and the stocktakings behind them, so a venue that cannot find a single counting sheet has a records problem and a completion problem at the same time. Note the categories separately, because cellar stock, dry goods, frozen goods and consumables are valued differently and argued about differently at midnight on completion day. Write down the method you intend to use on the night and who from each side will be present. This is the step owners skip and the one that most often costs four figures in the last twelve hours of a sale.

8. **Read your own public record the way a stranger reads it, before a stranger does.** Companies House publishes free "company information, for example registered address and date of incorporation, current and resigned officers, document images, mortgage charge data, previous company names, insolvency information", and anybody at all can "set up free email alerts to tell you when a company updates its details (for example, a change of director or address)". So a buyer, a competitor and your landlord can each read your filing history and be told the moment you file anything. Print your own filing history and put it in the file. Note every late filing, because the penalty is automatic and escalating, for a private company at "Not more than 1 month, GBP 150. More than 1 month but not more than 3 months, GBP 375. More than 3 months but not more than 6 months, GBP 750. More than 6 months, GBP 1,500", and "The late filing penalty will be doubled if accounts are filed late in 2 successive financial years". Nothing on that record can be tidied retrospectively, so the only useful move is to know exactly what it says and have the explanation ready before you are asked for it.

9. **Hand the assembled inputs to Codex to build the files, and read the counts that come back.** Claude hands over the period dates and the rule that set them, the requirement checklist marked held, partly held or not held, every trace row, every owner cost row with its evidence reference, the VAT facts, the regulation 11(2) headings per employee, the stock records and the filing history, all as supplied values with no judgement left open. Run:

   ```
   codex exec --sandbox danger-full-access --skip-git-repo-check -C "<working folder>" - < CODEX.md
   ```

   Back come the CSV files, the VAT and stock notes, and `gaps.md`. Codex counts, sorts and records. It does not decide whether a cost is owner specific, it does not decide the TOGC question, and it never fills an empty cell with a plausible number. Read the gap count first and the row counts second, because a gap count of zero on a real set of books is usually a sign that the inputs were smoothed before they were handed over, not a sign that the books are clean.

10. **Write the missing list in plain words and put it at the front of the file, not the back.** For every record that cannot be produced, say what it is, which year it belongs to, who was asked, what they said, and whether a substitute exists, such as a bank statement standing in for a lost purchase invoice. Do not write "to follow" against anything: either it is coming, with a date and a name against it, or it is missing. An owner who hands over a pack with a two page missing list at the front is read as organised. An owner who hands over a pack with no missing list and three holes in it is read as either careless or evasive, and the buyer's accountant cannot tell which, so they price for both.

## Then it checks

1. The file states a start date and an end date for the period covered and names which retention rule set them, and every financial year between those dates is either present in the file or listed in the gap list.
2. Every headline figure in every year has a trace row naming the source document, its location and a named person, and no row reads "with the accountant" without a person's name and a date.
3. Every owner specific cost is its own row with an amount, a year, an account line and an evidence reference, and no adjusted, normalised or added back profit figure appears anywhere in the file.
4. The VAT section states the registration number, the effective date, the scheme, the date of the last return filed, and the name of the person who will decide the TOGC question.
5. The payroll section lists every current employee against every heading in regulation 11(2), and every heading with nothing against it appears in the gap list rather than as an empty cell.
6. The gap list names every record that cannot be produced with its year, the person asked and their answer, and contains no item reading "to follow", "approx" or "as before".

Any check fails: name it, redo that step once. Failed twice: say what is wrong and stop.

## Rules
- Public information only.
- Never invent a fact, a number or a quote.
- Anything sent in someone's name says whose name it is.
- Never restate, re-present or adjust the accounts. This file sits beside the accounts and explains them. The moment it contains a profit figure that does not appear in a filed or signed set of accounts, it stops being a records file and becomes an unaudited claim, and the buyer's accountant will then treat every other page the same way.
- Never create a figure that is not in a document you can put your hand on. A missing number is a row in the gap list with its year and the person who was asked. An estimate written into a diligence pack is the fastest way to lose a price that had already been agreed.
- Never state an EBITDA multiple, a turnover multiple, a price per cover or any other benchmark for a single independent UK hospitality business. No published, verifiable figure exists: nothing on gov.uk, nothing from the Valuation Office Agency and nothing from the Office for National Statistics gives one. Every number in circulation comes from business transfer agents and brokers paid a percentage of the sale, or from firms selling a valuation product. An owner who believes a high borrowed multiple turns down the one fair offer they get and goes back to market a year later looking stale; an owner who believes a low one accepts the first offer and never learns there were two other buyers. Either way the number did the deciding, and the number was somebody else's sales tool.
- Never destroy, re-date or tidy a record because it looks bad, and never let anyone else do it. Failing to keep adequate accounting records is already an offence under section 387(1) of the Companies Act 2006, with a defence only where the person "acted honestly and that in the circumstances in which the company's business was carried on the default was excusable". A bad record that is explained survives diligence. A missing record that used to exist does not.
- Never hand the payroll file, a customer list or any staff personal data to an enquirer before a confidentiality agreement is signed and your solicitor has said which parts go across and when. The TUPE duty in regulation 11 is owed to an actual buyer at an actual transfer. It is not permission to email a spreadsheet of staff records to somebody who has merely asked to see the business.
- Never present a management figure as an accounts figure. Label every number in the file as filed accounts, signed accounts, management accounts, bank record or till record, and keep the label attached to the number wherever it is copied.
- This output is a working document prepared for the owner's own solicitor and accountant to check. It applies published rules to records the owner supplies. It is not legal advice, it is not tax advice, it is not a valuation, and it is not a statement that the records comply.

## Built from
- Companies Act 2006, section 386, "Duty to keep accounting records", https://www.legislation.gov.uk/ukpga/2006/46/section/386, page states it is up to date with all changes known to be in force on or before 22 September 2026, read 23 September 2026: the adequate records duty, the day to day entries and the stock statements required of a business dealing in goods, feeding steps 2 and 7.
- Companies Act 2006, section 387, "Duty to keep accounting records: offence", https://www.legislation.gov.uk/ukpga/2006/46/section/387, page states it is up to date with all changes known to be in force on or before 21 September 2026, read 23 September 2026: the offence committed by every officer in default and the honest and excusable default defence, feeding step 2 and the rule against tidying a record.
- Companies Act 2006, section 388, "Where and for how long records to be kept", https://www.legislation.gov.uk/ukpga/2006/46/section/388, page states it is up to date with all changes known to be in force on or before 22 September 2026, read 23 September 2026: the three year preservation period for a private company and the duty to keep records open to inspection by the company's officers, feeding step 1.
- Companies Act 2006, section 389, "Where and for how long records to be kept: offences", https://www.legislation.gov.uk/ukpga/2006/46/section/389, read 23 September 2026: the separate offence of failing to take all reasonable steps to secure compliance with the preservation period, feeding step 1.
- HMRC and GOV.UK, "Business records if you're self-employed: How long to keep your records", https://www.gov.uk/self-employed-records/how-long-to-keep-your-records, no publication or updated date shown on the page, read 23 September 2026: the five years after the 31 January deadline rule that sets the outer date in step 1.
- HMRC and GOV.UK, "Business records if you're self-employed: What records to keep", https://www.gov.uk/self-employed-records/what-records-to-keep, no publication or updated date shown on the page, read 23 September 2026: the record categories, the acceptable proof and the traditional accounting extras, feeding step 2.
- HMRC and GOV.UK, "Business Asset Disposal Relief", https://www.gov.uk/business-asset-disposal-relief, no publication or updated date shown on the page, read 23 September 2026: the 18% rate for disposals from 6 April 2026 and the two year qualifying conditions, feeding step 4.
- HMRC, "Transfer a business as a going concern (VAT Notice 700/9)", https://www.gov.uk/guidance/transfer-a-business-as-a-going-concern-and-vat-notice-7009, published 6 December 2012, last updated 23 May 2025, read 23 September 2026: the mandatory TOGC rules, the input tax consequence of getting it wrong and the VAT68 registration number transfer, feeding step 5.
- The Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246, regulation 11, https://www.legislation.gov.uk/uksi/2006/246/regulation/11, page states it is up to date with all changes known to be in force on or before 23 September 2026, read 23 September 2026: the employee liability information duty, its contents and the fourteen day and 28 day clocks, feeding step 6.
- Companies House and GOV.UK, "Get information about a company", https://www.gov.uk/get-information-about-a-company, no publication or updated date shown on the page, read 23 September 2026: what a buyer can read for free and the free change alerts, feeding step 8.
- Companies House, "Late filing penalties", https://www.gov.uk/government/publications/late-filing-penalties/late-filing-penalties, page states published 16 January 2026, read 23 September 2026: the private company penalty bands, the doubling for two successive late years and the criminal offence statement, feeding step 8.

# books-for-diligence

## You are given
The records position of one UK hospitality business being prepared for sale or handover. The period the file covers, as a start date and an end date, together with the name of the retention rule that set them, which is one of the Companies Act three year rule, the HMRC five year rule or the buyer's request. The legal form of the business, stated as sole trader, partnership, limited company or limited liability partnership. The requirement checklist, one row per statutory record category, each already marked by the owner as held, partly held or not held. Every trace row the owner has compiled: a figure, the financial year, the account line it sits on, the name of the source document, where that document lives, the person who can produce it, and whether the owner personally followed that figure through to a bank line or a till reading. Every owner specific or personal cost the owner has identified, each with an amount, a year, the account line it currently sits in and the name of the evidence document behind it, already classified by the owner. The VAT facts: registration number, effective date of registration, scheme, date and value of the last return filed, any assessment, surcharge or open enquiry, the owner's statement of whether the sale is expected to be a transfer of a going concern, and the name of the professional who will decide that. The payroll list, one row per current employee, with whatever the owner holds against each heading in TUPE regulation 11(2). The stock records: the date of the last full count, who counted it, the valuation basis, the location of the counting sheets, and the category split. The Companies House filing history, including every late filing with its due date and its actual filing date. Every judgement call has already been made by the owner: which costs are owner specific, whether a record is held, whether the sale is a TOGC, and which retention rule governs. None of them is yours to make or to revisit.

## Produce
Write into a `./books-for-diligence-output/` folder:

1. `period.md` recording, on separate lines and nothing else: the legal form of the business; the start date and the end date of the period covered, both as DD Month YYYY; the retention rule that set them, stated as exactly one of `Companies Act 2006 s388(4) three years`, `HMRC five years after the 31 January deadline` or `buyer request`; each financial year inside the period listed on its own line with `present` or `missing` against it; and the count of years marked `missing`. Every line names the supplied input it came from.
2. `records-checklist.csv` with these columns in this order: `requirement_ref`, `requirement_verbatim`, `source_of_requirement`, `applies`, `status`, `where_held`, `responsible_person`, `note`. `requirement_ref` is R001 upward. `source_of_requirement` is exactly one of `Companies Act 2006 s386`, `Companies Act 2006 s388`, `HMRC self employed records`, `VAT`, `PAYE`. `applies` is `yes` or `no`. `status` is exactly one of `held`, `partly held`, `not held`. Every row reading `partly held` or `not held` is also a row in `gaps.md`.
3. `trace.csv` with columns: `trace_ref`, `financial_year`, `account_line`, `figure_gbp`, `figure_label`, `source_document`, `document_location`, `responsible_person`, `traced_by_owner`, `trace_outcome`. `trace_ref` is T001 upward. `figure_label` is exactly one of `filed accounts`, `signed accounts`, `management accounts`, `bank record`, `till record`. `traced_by_owner` is `yes` or `no`. `trace_outcome` is exactly one of `followed to bank line`, `followed to till reading`, `broke at source document`, `not attempted`. Every row whose `trace_outcome` is `broke at source document` or `not attempted`, and every row with an empty `source_document`, `document_location` or `responsible_person`, is a row in `gaps.md`.
4. `owner-costs.csv` with columns: `cost_ref`, `financial_year`, `description_verbatim`, `amount_gbp`, `account_line`, `cost_category`, `evidence_document`, `evidence_date`, `evidence_supplied`. `cost_ref` is C001 upward. `cost_category` is exactly one of `vehicle`, `telephone and communications`, `family wages`, `property or accommodation`, `insurance`, `professional fees`, `travel and subsistence`, `other personal`. `evidence_supplied` is `yes` or `no`. Do not total this file, do not produce a subtotal by year, and do not write any adjusted, normalised or added back profit figure in any file.
5. `vat-position.md` recording, on separate lines: the registration number; the effective date of registration; the scheme; the date and value of the last return filed; each assessment, surcharge or open enquiry on its own line, or the word `none supplied`; the owner's stated expectation on transfer of a going concern, as exactly one of `expected TOGC`, `expected not a TOGC`, `not yet decided`; the named professional who will decide it; and whether the owner intends to apply to transfer the VAT registration number, as `yes`, `no` or `not yet decided`. Any of these supplied as blank becomes `not supplied` and a row in `gaps.md`.
6. `payroll-file.csv` with columns: `employee_ref`, `identity_supplied`, `age_supplied`, `section_1_particulars_supplied`, `disciplinary_last_two_years`, `grievance_last_two_years`, `tribunal_claim_last_two_years`, `anticipated_claim`, `collective_agreement`, `information_as_at_date`, `completeness`. `employee_ref` is E001 upward and carries no employee name. Every heading column is exactly `supplied`, `none`, or `not stated`. `completeness` is `complete` where no column reads `not stated` and `incomplete` otherwise. Every `not stated` cell is counted in `gaps.md`.
7. `stock-position.md` recording, on separate lines: the date of the last full count; the person who counted it; the valuation basis exactly as supplied; the location of the counting sheets; each stock category on its own line with `sheets supplied` or `no sheets supplied` against it; and whether year end stock statements exist for every financial year in `period.md`, listed year by year.
8. `filing-history.csv` with columns: `filing_ref`, `document_type`, `period_end_date`, `due_date`, `filed_date`, `days_late`, `penalty_band`, `successive_late_year`. `days_late` is filed date minus due date where both are supplied, and is left empty where either is not. `penalty_band` is exactly one of `not late`, `not more than 1 month`, `more than 1 month but not more than 3 months`, `more than 3 months but not more than 6 months`, `more than 6 months`, derived only from a supplied `days_late`. `successive_late_year` is `yes` where the immediately preceding financial year in the same file is also late, otherwise `no`.
9. `gaps.md`, a numbered list, each item naming the record, the financial year it belongs to, the person who was asked and their answer where supplied, and the file and row reference it came from. It covers: every checklist row reading `partly held` or `not held`; every trace row that broke or was not attempted; every trace row missing a document, a location or a person; every owner cost row with `evidence_supplied` reading `no`; every `not supplied` line in `vat-position.md`; every `not stated` payroll cell; every stock category with no sheets and every financial year with no year end stock statement; and every financial year marked `missing` in `period.md`. End the file with the total item count on its own line.

## Rules
- Codex sorts, counts, derives dates and records what it is given. It never decides whether a cost is owner specific, never decides whether a record is held, never decides the transfer of a going concern question, never decides which retention rule applies, and never decides whether a figure is reasonable. All of those were supplied.
- Never estimate, interpolate or round a missing figure. An empty input stays empty, and becomes a row in `gaps.md`. A part traced year reports as incomplete rather than as a number.
- Never restate the accounts. Do not total `owner-costs.csv`, do not compute an adjusted profit, an add back, an EBITDA, a normalised earnings figure or any derived profit measure, and do not create any new financial figure that is not a date difference or a count of rows.
- Never write an EBITDA multiple, a turnover multiple, a price per cover, a rent to turnover ratio or any other benchmark or comparison figure for an independent UK hospitality business into any file. No such published figure exists and none is to be recorded, including one supplied in the inputs, which is instead recorded verbatim in `gaps.md` as a borrowed figure with no source.
- Never carry a figure, a document reference or a person's name forward from one financial year into another. Each year stands on the documents supplied for that year.
- Never place an employee name, a national insurance number, a date of birth, a home address or a bank detail in any output file. `payroll-file.csv` uses `employee_ref` only, and the key linking a reference to a person stays with the owner.
- Derive `days_late` and `penalty_band` only from two supplied dates. Where either date is missing, both cells stay empty and the row goes to `gaps.md`. Never infer a due date from a period end date.
- Use British English, GBP written as `GBP` or the pound sign, and DD Month YYYY dates throughout. No em dash characters and no en dash characters in any file you write. Any supplied text containing one is recorded verbatim and flagged in `gaps.md`.
- Every quoted figure label, description, valuation basis and VAT note is copied exactly as supplied, including its punctuation and capitalisation.
- Every file ends with this line: this is a working document prepared for the owner's own solicitor and accountant to check, it applies supplied rules to supplied records, and it is not legal, tax or valuation advice and not a statement that the records comply.

## Return
The absolute path of every file written. The row count of every CSV. The start date, the end date and the retention rule recorded in `period.md`, with the count of financial years marked `missing`. The count of checklist rows reading `held`, `partly held` and `not held`. The count of trace rows by each value of `trace_outcome`. The count of owner cost rows and the count of those with `evidence_supplied` reading `no`, stated as counts and never as a money total. The transfer of a going concern expectation recorded in `vat-position.md` and the named professional who will decide it, or the words `not supplied`. The number of employees in `payroll-file.csv`, the number reading `complete` and the number reading `incomplete`. The date of the last full stock count and the number of financial years with no year end stock statement. The number of filings recorded late and the number of those flagged `successive_late_year`. The total item count from the last line of `gaps.md`.