How long do you have to keep business records & how long to retain tax records (storing financial records)

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Introduction -how long to keep business records 

As a contractor and UK business owner, how long do you have to keep business records (UK) and financial records? In fact, when we think about this, how long do you have to keep records for HMRC (HM Revenue & Customs)? Please note, you should be aware of how long to keep company records and about storing financial records as this is one of your director’s duties.

If you set up your company for the first time, you need to be aware of how long to keep business records (UK) for. What’s more, you also need to understand how to maintain your accounting records and how long you need to store these.

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. 

Why you need good accounting records to satisfy HMRC

Whichever way you perform your work, through your own company or self-employed, as part of your small business bookkeeping, you should aim to keep good accounting records for each accounting period. This is important as they may need reviewing later either by yourself or by one of the tax authorities. A tax inspection can occur at any time therefore you should have good accurate accounting records so that they can be inspected with ease.

How long to keep financial records for a business (UK)? It is important to note, you should also keep the business records in a safe place for a certain amount of time. How long you should keep them depends on the tax type 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 was kept offline in paper format.

Besides business and tax records, a company must also keep statutory records.

How long do you have to keep records for HMRC -what you need to consider 

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

In terms of the length of time to keep your records, please note the below.

How long to keep company records (UK)

How long do you need to keep business records and, as part of this, how long to keep business bank statements for? Company directors must be storing business records for their company for each accounting period for at least six years, after the end of the accounts year they relate.

How long to keep Self-Assessment tax records (UK)

When we look at how long to keep tax records (UK) for self-Assessment, 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 individual tax filing deadline is 31 January; however, the personal tax year ends on 5 April. Therefore, records covering the year to 5 April will need to be retained.

When considering how long to retain tax records, an individual’s personal tax records will include income details 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.

How long to keep records as an employer (UK)

If you are an employer and run a PAYE scheme, how long do I need to keep payroll records for? Please note, when we look at how long to keep payroll records and what to keep, such records will include the amounts the company deducts for tax purposes and National Insurance. This will also include any statutory payments for sick pay and maternity pay. Notably, you should save the files safe for at least three years.

Overview

As we show above, depending on the types of records, you need to keep them for different lengths of time. Therefore, keeping your records and documents for six years makes sense. 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. 

Do I need to keep paper records for HMRC 

Nowadays a lot of details e.g., banking, invoices etc are kept online. Therefore, as long as you have the records online or manually this should suffice for HMRC. If you do receive any paper invoices or receipts from suppliers, you could scan these and save them online too however it is advisable to keep the originals too.

How long to keep business records -the reasons why 

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 later. 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. On the other hand, they may also have some documents, 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, various 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 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.

You must make your business records available in each case 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 tax records available to them at their request.

HMRC inspection outcomes

As the result of an 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.

How long to keep business records -which records should you 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 documents in a safe place:

  • Bank statements for all company bank accountsand any company credit card accounts. If you have gone paperless, you can 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/expenditures. Nowadays, many suppliers will send a receipt to your e-mail address to save paper. Any invoices or receipts you have received electronically could be printed out, or, again, you can keep these on your computer.
  • Any business mileage records. This should contain dates travelled, details of journeys made, the reason for the trip 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 worthwhile read when considering how long to keep financial records for a business (UK). Knowing how long you should retain your documents is good 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: August 1st, 2022 / Categories: First timer guide, Most Read Articles, Record Keeping /

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