how long to keep accounting records and financial records

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Introduction 

As a limited company contractor and UK business owner, how long do you have to keep business records (UK)? What’s more, how long do you need to keep financial records (UK)? Also, as an individual who files personal tax, how long to keep tax records (UK)? Considering these questions, for what length of time must you keep records for HM Revenue & Customs (HMRC)? All limited company directors should know how long to keep financial records for a business (UK) and the company records storage processes. Moreover, they should know that storing financial records for the required time is one of their director’s duties. This guide will take a general overview of how long to keep accounting records (UK). We’ll research what else to consider regarding how long to keep business records and financial records storage as a UK contractor.

If you set up your company for the first time, you should know how long to keep your accounting records. In addition to knowing this, you should understand how to maintain your company’s accounting records.

You may work as a contractor running your own company, as a self-employed freelancer, or through an umbrella company. In each case, knowing how long a contractor should keep business records and when you can eventually dispose of them is key.

Initial thoughts on storing and retaining accounting records 

Why do you need good accounting records to satisfy HMRC? 

Every company has a financial year-end. As a result, the business accounts and financial statements are made up to each company’s financial year-end date. On the other hand, as an individual, the personal tax year ends on 5 April each year. In terms of filing, a company will file accounts with Companies House and both accounts and company tax return with HMRC once per annum. In addition, an individual will also file a tax return with HMRC every year. Therefore, the year of accounts or tax return represents a year’s financial information. When you report your profits or income annually to the authorities as a business or personally, you should store your contractor records safely for the periods your records relate to.

When we consider the storage of your business accounting documents, whichever way you perform your work, through your own company or self-employed sole trader, as part of your small business bookkeeping, you should aim to keep good accounting records for each company financial year. This is important as the tax office may ask to review your contractor’s accounting records. On the other hand, you may have to check back on something from a prior year. What’s more, an HMRC Compliance Check (tax inspection) can occur at any time during the calendar year. Therefore, you should’ve good, accurate accounting records so they can be easily inspected.

How long to keep financial records for a business (UK)? You should keep the business records in a safe place for a certain amount of time. However, how long you should keep the records depends on the tax type the records relate to. 

Common questions

Many small business owners and contractors have questions about storing their company records. Therefore, here’s a few examples:

  • How long are you supposed to keep bank statements?
  • How long do you keep accounts for?
  • As a taxpayer, how long to keep personal financial records (UK)?
  • How many years do you have to keep business records?
  • How many years of accounts do I need to keep?

Therefore, in this guide, we’ll examine all the above and determine the length of time to retain business and personal tax records.

Making Tax Digital & online accounting software

With the advent of the internet and, more recently, Making Tax Digital, many UK contractors and small businesses now store their records online or partly online/partly offline. They often use online contractor accounting software (UK) for their digital business records. This contrasts with before the age of technology when most business record keeping was kept offline in paper format.

Statutory records

A company must keep statutory records in addition to business and tax records. Your accountant usually maintains these company records containing details on directors, shareholders, and other official data.

How long do you have to keep records for HMRC? 

What should you consider first when storing business records? 

When considering what length of time you need to keep business records (UK), it’s essential to note the main reason is HM Revenue & Customs (HMRC). This is because they may want to inspect the documents later. Indeed, such an inspection could come up at any time. Therefore, let’s consider accounting records storage and for what length of time you should retain records.

When we research how long to keep financial records for a business (UK), the recommended lengths of time are shown below.

How long to keep company records (UK)?

How long should a contractor keep records for their UK limited company? When storing company accounting records, let’s consider how long to keep business bank statements and other accounting records. A company director must store business records for their limited company in a safe place. Therefore, when it comes to how long to keep business bank statements (UK) and other bookkeeping records, these should be kept for at least six years for each of your accounting periods after the end of the accounts year to which 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 must keep their records for five years from the end of the tax year to which the records relate for income tax purposes.

People who work via an umbrella company must keep their personal tax records as they’re 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 must 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. Therefore, when we consider how long to keep personal tax records (UK), they should be retained for 22 months from the end of the tax year to which they relate.

How long to keep employer (UK) records?

If you’re an employer and run a PAYE scheme, how long do I need to keep payroll records? 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 consists of any statutory payments for sick pay and maternity pay. Therefore, you should save these files and records in a safe place for at least three years.

An overview on how long to keep accounting records 

Keep and dispose of your records

As we show above, when considering accounting and business records storage, you must keep them for different lengths of time depending on the types of records. Therefore, keeping business 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’ve kept them for the required time. 

Do I need to keep paper records for HMRC? 

Nowadays, many business accounting details, such as banking, invoices, etc., are kept online. Therefore, if you have the records online or manually, this should suffice for HMRC. If you receive any paper invoices or receipts from suppliers, you can scan them and save them online. However, it’s advisable to keep the originals, too.

How long to keep business records & what are the reasons why? 

As part of our research on retaining accounting information and how long to keep financial records (UK), there are plenty of reasons to keep business and tax records for each financial year. These are in addition to the legal reasons we mentioned above.

A common reason for the owner of a contractor limited company or any other business is that you may wish to check back on something in your previous records later. This could be for your own purposes if a query arises.

Most limited company contractors now use online software systems for small business bookkeeping. Therefore, when we look at what length of time you must keep financial records, most of their data is now online. On the other hand, they may have some documents, such as receipts, kept offline.

How long to keep business documents & which records should you keep in a safe place? 

As part of the process of storing the data, you must keep the various types of business records and documents in a safe place. Therefore, your contractor accounting records include:

  • The first item in a contractor’s records is any cash books or spreadsheets you use to record your business transactions.
  • Bank statements for all company bank accounts and company credit card accounts. If you’ve gone paperless, you can access these online. However, banks only keep history for so long. Therefore, you may decide to print out your statements. Another option is to download the statements and save them on your computer.
  • Sales invoices for your services and sale of any goods.
  • Invoices or receipts for purchases/expenditures. Many suppliers will send a receipt to your e-mail address to save paper. Therefore, any invoices or receipts you’ve received electronically could be printed out, or, again, you can keep these on your computer.
  • Part of your contractor books will include any business mileage records. Indeed, 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 or maternity pay, etc.
  • Details of all your business’ assets and liabilities.
  • In the past, you kept copies of VAT returns. Today, you can save these online when using a digital software system.
  • Details of any financial charges secured against the company’s assets.
  • Minutes of board meetings. Sometimes, after a board meeting, your accountant keeps a copy of the minutes in the company’s statutory registers.

Which other areas are there to consider?

How long to keep accounting records for a business & potential tax enquiries

As a business owner, various Compliance Checks or enquiries from the tax office could come around from time to time. If this occurs, HMRC will want to view your company records:

  • HMRC may decide to conduct a VAT inspection. As part of this, they may investigate the business VAT records and the amounts making up recent VAT returns.
  • The tax office could carry out a Corporation Tax When they do this, they may investigate the figures which make up last year’s company tax return.
  • HMRC may perform a routine PAYE inspection.

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

How long to keep accounting records for a business & HMRC inspections

If HMRC inspects you for any of the above, the tax office may find the amount of tax you or your company have paid is incorrect. As a result, they may issue an assessment requesting extra tax, which is now due. On the other hand, if they find you’ve paid too much tax, HMRC will arrange a refund.

How long to keep personal tax records & HMRC enquiries

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

How long must you keep records for a closed business (UK)?

When we consider this, the same timeframes apply as we outline above. Therefore, it’s six years for limited company accounting records, and for the other types of taxes, etc., it’s the same as we mentioned above. 

Final thoughts

When we look into how long do you have to keep business records (UK) the general rule is six years. However, when we consider storing financial documents, there are other periods for different types of records, as summarised earlier.

We hope you found this a worthwhile read when considering how long to keep financial records for a business (UK). We cover how long to keep accounting records, tax records (UK), and business records in general. Knowing until what date you should retain your accounting records and documents puts you in good stead so no unnecessary issues occur further down the line.

Link to Contractor Advice UK group on LinkedIn

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

Published On: April 6th, 2024 / Categories: First timer guide, Most Read Articles, Record Keeping /

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