How Long Should I Store Business Records?

Ah, the good old filing cabinet. From a childish perspective, these towering monoliths of metal formed the very essence of what it meant to be in ‘an office’; an unapproachable adult thing from a perplexing world.

Plus, there was always the threat that if you played with them you risked tipping them over and crushing yourself to death!

The worry that a filing cabinet would crush you to death wasn’t just a childish fear – plenty of company directors and self-employed traders have to concern themselves with keeping business records, and without guidance that responsibility can feel just as stressful as the fallen filing cabinet.

Thankfully, in 2020 and beyond, records are very much digital.

A history of everything in your business

There are some rules, enforced by Her Majesty’s Revenue and Customs (‘HMRC’), that govern how long you have to keep records on your company financial activities. In the days of paper-based accounting, holding on to everything for years could mean not just one filing cabinet, but an entire storeroom dedicated to archiving the history of your every transaction. Having a threshold of how long you had to keep your records was important, as there was a real-world physical implication of holding onto paper records for another year or two. In today’s world, such a consideration is rarely required. It is perfectly legitimate in 2020 to hold documentation digitally.

Now we are in the era of digital tax returns, holding documentation digitally isn’t even a choice – it’s essential.

Unless you are archiving particularly dense material (high quality video, for example), the chances are that there really is no limit to the amount of records you can easily store. With that in mind, it’s always the best idea to keep everything you have. A good archiving and backup system, whether locally stored or via a cloud infrastructure, will ensure that you meet all required guidelines and mean that the heavy weight of compliance doesn’t weigh upon you.

Business records management for sole traders

The rules for sole traders are not quite as strict as those running a limited company. Nonetheless, once you enter into business for yourself, you have an obligation to keep hold of all relevant financial paperwork as follows:

Business records must be kept for at least five years from the date of the applicable tax return (31st January in the relevant tax year).

This includes:

• business expense receipts and invoices;
  • examples include fuel receipts, invoices for computer equipment, third-party contractor invoices etc.
• sales documentation and invoices;
  • examples include copies of invoices provided to clients, merchant sales receipts, online shop data etc.
• personal income;
  • keep copies of bank statements stretching back a full five years for all accounts, or check these can be easily acquired when needed
• all money paid into the business;
• all money withdrawn from the business; and
• VAT documentation (if VAT registered).

Government grant information must be kept for at least four years following the date of receiving the grant.

Business records management for limited companies

Limited company records must be held for six years from the end of the accounting period. Company directors have a legal obligation to make sure these records are looked after and available upon request from HMRC.

In addition to all the records that a self-employed sole trader business must retain (detailed above), a limited company must also make sure the following is well documented:

• full details of all business assets;
  • regularly inventory all products sold by the business
  • non-sale assets from the office building (if owned) to the desks and other furniture must also be considered
• loans or other finance linked with business assets;
  • this can include mortgages, car finance and more
• current business liabilities; and
• shareholder transactions.

Some documentation must be kept beyond the standard six years and remain accessible for ten years, including:

• the company’s statutory books;
• board meeting minutes and resolutions; and
• VAT MOSS records (EU international VAT).

Employers records

If you employ people through the Pay As You Earn (PAYE) tax system, then you must maintain complete records for three years from the end of the relevant tax year. This includes:

• Tax codes;
• Payments made to HMRC;
• Salaries paid to employees;
• Full details of employee sickness and holiday;
• Taxable expenses; and
• Taxable benefits.

Suitable record keeping options

While physical record keeping still falls within legal bounds, it is no longer the primary desired way to keep your business history, nor is it the most efficient.

Digitising records has a huge advantage, not only in terms of storage space but also in terms of safety and security. Off-site backup solutions, including cloud storage and backup, means your records will remain intact even following a disastrous accident, such as a fire.

Digitisation can be done in many ways and is often simpler than first thought. It is quite acceptable, for example, to take a photo of your fuel receipt with your smartphone and register the picture as the official record. If the pertinent details are fully readable in the photograph, it will be considered adequate.

There are several software solutions available to help businesses maintain long term digital copies of their records, and many of the top accounting packages now include features to enable you to photograph and upload documentation for longevity.

Remember that it is important for you to keep up to date with the digitisation of your documentation, and that mixed record keeping (half digital, half physical) will be frowned upon. Also ensure that your records are adequately protected for security.

Many additional parts of your record keeping, such as your accounts, payroll, tax returns etc. will already be developed in a purely digital medium, so the integration of additional digital records for other aspects of the business is both sensible and cost-effective.

Dealing with lost or stolen business records

If anything happens to your records which means they are temporarily or permanently lost, you should immediately contact HMRC who will do what they can to help; it may be that documents can be rebuilt, and accounts recalculated.

Up to £3,000 in penalties can be enforced if you cannot produce records when you are asked to do so, so it is important that you do not let any loss of your company accounting records to go unreported.

For this reason, multi-layered backup policies are an important part of your digital business strategy.

If an HMRC investigation occurs

Full transparency is the best policy if any of your records are requested by HMRC. It is important that you can provide the data they need without delay and in the most efficient form. All accountancy packages allow for the export of data in multiple formats, but secondary information may be more complicated to extract, so make sure you have full understanding of the technical aspects of your record keeping and are able to act without undue delay should anything be needed.

If you do find yourself or your company the subject of an HMRC investigation, then you will need to retain all records until you are advised otherwise directly from HMRC, superseding any previous time limitations.

Overseeing your records at Black and White accounting

We can offer advice regarding your record keeping and the best digital solutions to ensure that you are able to get on with your business without the crushing worry of administration, let alone the costs, weighing down on you. Contact us today to have one of our team advise you – email us, fill out our simple contact form or just pick up the phone! We look forward to hearing from you.