Running your own company means keeping accurate business accounting records. Failing to keep track means you can’t file accurate accounts to HMRC. It also means you don’t know where your business is financially.

Keeping records safe is necessary, but how long do you need to hang on to them? And why do you need to keep them once the year-end is over and you’ve paid your taxes and other liabilities?

Here’s everything you need to know.

Why do I need to keep business accounting records?

Apart from helping you understand the financial position of your business, you have a legal obligation to keep records. Directors who fail to keep them can be fined up £3,000 by HMRC or even disqualified for failing to keep adequate records.

The other reasons for keeping records include:

• Showing and explaining the company’s transactions and disclosing with reasonable accuracy the financial position of the company.
• Disclosing your accounting records to HMRC should they decide to investigate your business affairs.
• Providing accurate records for your own personal use, including checking transactions, such as paid invoices.
• Maximising the business expenses you can claim and reducing your tax obligations.
• Identifying strengths and weaknesses so you can plan for business growth.

What records should I keep?

Keeping business account records is essential whether you are a sole trader, partnership, a community interest company (CIC) or a limited company.
The details you need to keep includes:

• Sales and income records such as sales invoices, cash receipts, till rolls and bank statements.
• Records of purchases and expenses, including till receipts and purchase invoices.
• VAT records, if you are VAT registered.
• Pay As You Earn (PAYE) records.
• Debts the business owes or is owed.
• Stock owned by the company at the end of the financial year.
• Statements of goods and services bought and sold, including a list of the goods, buyers and sellers.
• Copies of past annual accounts, company tax returns and self-assessment tax returns.

How long do I need to keep business accounting records?

If you are self-employed, HMRC requires you to keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year.

Limited companies are required to keep records for at least six years from the end of the last company financial year. You need to keep records for a longer period if:

• They show transactions that cover more than one accounting period.
• You sent a Company Tax Return late.
• HMRC has already carrying out a compliance check into your Company Tax Return.
• Your company buys something that it expects to last more than 6 years, such as machinery.

How should I store them?

If you’re using accounting software, such as Xero, then they will be stored electronically. This is useful as you won’t need to shred documents. If you’ve only moved to accounting software, you need to keep old paper documents safely. This includes P60s, invoices, receipts and bank statements.

The best way to store them is in a filing cabinet or box system. Ensure everything is filed correctly so it is easy to find them should HMRC decide to carry out an inspection.

When using software, the records are usually kept in the cloud by the provider. If not, or you are unsure, it’s worth backing up your data to in case the originals are lost or destroyed.

Using a bookkeeper

If you use a bookkeeper, then they will keep records for you and they will be in order. Concept Accountancy offers bookkeeping along with our other accountancy services, so if you need help you can speak to our team.