How long do you have to keep business records

Introduction

As a UK business owner, how long do you need to keep financial and business records for? Please note, you should be aware that this is one of your director duties. Therefore, if you are setting up your company for the first time, you need to know what to do here. What’s more, you also need to know how to maintain your accounting records, as well as how long you need to store them for.

You may work as a contractor running your own company. On the other hand, you may be a self-employed freelancer, or you may work through an umbrella company.

Initial thoughts

Whichever way you perform your work, through your own company or self-employed, as part of your small business bookkeeping, you should keep your accounting records for each accounting period in a safe place for a certain amount of time. How long you should keep them for will depend on the type of tax they relate to. 

With the advent of the internet and more recently Making Tax Digital, many businesses now store their records online or part online / part offline. They will also use online accounting software in many cases. This is in contrast to before the age of technology, when most business record keeping were kept offline in paper format.

Besides business and tax records, a company is also required to keep statutory records.

What you need to consider  

When we consider how long do you need to keep business records, it is important to note that the main reason is for HM Revenue & Customs (HMRC). This is because they may need to inspect the records at a later date.

In terms of the length of time to keep your records for, please note:

Part one

  • Company directors need to be storing business records for their company for each accounting period for at least six years, after the end of the accounts year that they relate.
  • Sole traders and self-employed people need to keep their business records for five years for income tax purposes, from the end of the tax year that they relate.
  • People who work via an umbrella company also need to keep their personal tax records as they are employees, not business owners. The personal tax fling deadline is 31 January however the personal tax year itself ends on 5 April. Therefore, records covering the year to 5 April will need to be retained.

Part two

  • Personal tax records will include details of income such as employment, interest income, pension income, rental income and expenses, dividend income, government support such as Universal Credit, foreign income and any capital gains information. These need to be retained for 22 months from the end of the tax year that they relate to.
  • If you are an employer and you run a PAYE scheme, you should retain all of your business’ payroll records. Such records will include the amounts the business deducts for tax purposes and National Insurance. This will also include any statutory payments for sick pay and maternity pay. You should save the files safe for at least three years.

As we show above, there are different lengths of time that you need to keep records for. Therefore, it makes sense to keep all of your records for a minimum of six years. You can then dispose of the relevant tax year or accounting year records, year by year, once you have kept them for the required amount of time. 

Retaining financial records

There are plenty of reasons to keep your business and tax records for each financial year. These are in addition to the legal reasons that we mentioned above.

A common reason is you may wish to check back on something at a later date. This could be for your own purposes, if a query arises.

Most contractors now use online software systems to do their small business bookkeeping. Therefore, most of their records are online. They may, on the other hand, also have some records such as receipts kept offline. You can also now scan any records and save them online. However, it is still wise for you to keep the originals.

For a business

As a business owner, a number of enquiries from the tax office could come around from time to time:

  • HMRC may decide to conduct a VAT inspection. As part of this, they may look into the amounts that make up recent VAT returns.
  • The tax office could also carry out a Corporation Tax inspection. When they do this, they may look into the details that make up last year’s company tax return.
  • HMRC may also perform a routine PAYE inspection.

In each of these cases, you will need to make your business records available to them at their request.

For personal tax

HMRC may decide to conduct a Self-Assessment enquiry into your last few tax returns or your latest return. In this case, you will need to make your personal tax records available to them at their request.

HMRC inspection outcomes

As the result of a HMRC inspection for any of the above, the tax office may find that the amount of tax you or your company have paid is incorrect. As a result, they may issue an assessment requesting extra tax that needs to be paid. Alternatively, if they find that you have paid too much tax, HMRC will arrange a refund.

Which records do you need to save in a safe place

As part of the process when you consider how long do you have to keep business records, you need to keep the following records in a safe place:

  • Bank statements for all company bank accounts and any company credit card accounts. If you have gone paperless, you will be able access these online. However, banks only keep history for so long though. Therefore, you may decide to print out your statements. Alternatively, you can download the statements and save these on your computer.
  • Sales invoices for your services and sale of any goods.
  • Invoices or receipts for purchases/expenditure. Nowadays, many suppliers will send a receipt to your e-mail address to save paper. Any invoices or receipts that you have received electronically could be printed out or, again, you can just save these on your computer.
  • Any business mileage records. This should contain dates travelled, details of journeys made, reason for the journey and the number of miles.
  • The details of any PAYE records. This would include your payroll workings, payslips, workings for any sick pay, maternity pay etc.
  • Details of all of your business’ assets and liabilities.
  • In the past, you would also keep copies of VAT returns. Today, you can save these online when using a digital software system.

Final thoughts

We hope you found this a useful read when you consider how long to keep financial records for a business UK. It is good to be aware of how long you should retain your records for, so that no unnecessary issues occur further down the line.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: March 17th, 2021 / Categories: First timer guide, Most Read Articles, Record Keeping /

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