Updated: 15th January 2020
Published: 21st May 2018
Severe penalties can be imposed for businesses that fail to produce business and accounting records when requested by HMRC. These fines can potentially amount to several thousand pounds or more.
Lack of physical space in which to store records can be an issue for some businesses, but you can keep them digitally rather than in paper form if you wish – you just need to bear in mind that they must be clearly legible.
Exactly how long you need to retain your records depends on your business structure – essentially, whether you’re self-employed or run a limited company. If you’re an employer, regardless of your business structure, you also have certain liabilities when it comes to the retention of documents.
If you’re a sole trader or in an unincorporated business partnership, you need to retain your business records for at least five years after 31st January of the relevant tax year. These records include all sales documentation, business expenses, personal income, money paid into and withdrawn from the business, as well as VAT and PAYE information if applicable.
Being the subject of an HMRC investigation means you’ll need to retain these records until HMRC advises you otherwise. In all cases, the required records generally include bank statements, sales receipts, purchase invoices, cheque book stubs, and VAT documentation.
If you’ve received a government grant, you should generally retain the documentation for a period of four years from the date of receiving the grant.
The rules for limited companies are a little different, and there’s more documentation to consider. In addition to the records mentioned above, limited company directors need to retain other documents including but not limited to, details of business assets, liabilities, loans secured against the company’s assets, and shareholder transactions.
In general, company records must be retained for around six years from the end of the accounting period. But some documentation needs to be kept for 10 years, including:
You must keep PAYE records for three years from the end of the tax year to which they relate. These include notices of tax codes, payments to employees and to HMRC, details of employee sickness and leave, any taxable expenses or taxable benefits.
If any business records have been lost or stolen, you should inform HMRC straight away. They may request that you try to recreate the documents, but financial penalties of up to £3,000 can be applied if you fail to produce the required records when requested.
For more information on which business records to keep, and for how long, our experts at Real Business Rescue can help. We have vast experience of dealing with HMRC, and can advise on how to approach the situation should you be unable to produce records when requested. Our extensive office network comprises 78 offices across the UK with a partner-led service offering immediate director advice and support.