Every UK business owner, whether they run a sole trader, a partnership or a limited company, is required to keep detailed records of their financial activities. The HMRC has some strict rules about which records must be kept, and for how long they must be retained. Here is a quick overview of your responsibilities as a business owner.
Your Responsibilities
It is your responsibility to keep detailed records of all of your financial transactions. If the HMRC decides to inspect your company, then they will expect to see the following:
- VAT papers going back 6 years (if you are VAT registered)
- PAYE records (if applicable) must be kept for three years following the year to which they relate
- Tax documents must be kept for 6 years after their chargeable period
- Corporation Tax and accounting records must be kept for six years after the end of their relevant accounting period.
- Entries relating to former company members must be retained for 20 years.
- paperwork relating to Government Grants must be kept for four years
Note that the periods listed above are just guidelines, and you may be required to keep your records for longer under certain circumstances, such as if a transaction covers more than one accounting period, or if the transaction relates to the purchase of equipment or machinery that is expected to last for longer than six years.
Penalties for Poor Record Keeping
If you are audited, and the HMRC feels that you have not kept organized and detailed accounting records then you may be fined. If you are the director of a limited company then the fine could be up to £3,000, and you may be disqualified as a company director.
It is important that your records are legible, organized and complete. Inspectors do not aim to “catch you out” and find flaws in your accounting process. If you have any concerns or questions about accounting, you should find that your local tax office is happy to help you understand the HMRC’s requirements. However, if your records are inconsistent or incomplete then the penalties can be quite severe.
Record Keeping Solutions
The HMRC recommends that businesses keep their records for a minimum of six years. The exact requirements depend on the kind of business that you operate, and personal records have different requirements to business-only records. If you struggle to maintain a systematic, secure and reliable record keeping system for your archived records, you may want to consider using a document storage service. If you maintain an organised filing system it should be easy to rotate older records into storage, keeping your office clutter free while still meeting your filing obligations.
The above information is intended to be basic guidance only. If you would like to know more about your record-keeping responsibilities, check the HMRC website, and the Companies House website, if applicable. If you need further guidance, talk to your accountant. Do not take risks with your record keeping, because failure to comply with the appropriate regulations could result in severe financial penalties.
