How Long To Keep Business Records in the UK? Introduction to Recordkeeping

Good business recordkeeping is key to managing a successful business. If you are a new business owner, the first year might be challenging for you after you have incorporated your company in the UK, as you decide which business records you have to keep. While recordkeeping can be challenging, having clear records of your employees, expenses, income, accounts and tax documents can help you monitor your company's progress and give you peace of mind.

Proper recordkeeping enables business owners like you to keep track of your financial transactions and other important information, which can help you make informed decisions about your operations. Additionally, keeping accurate records is a legal requirement for businesses in the UK.

Read on as we delve into the importance of maintaining good business records, and the necessary records that ecommerce companies must keep.

What Is Recordkeeping?

Recordkeeping is the foundation of accounting. It is the act of maintaining a record of financial business transactions. Its objective is to permanently keep tabs on all your transactions, minimise your expenses, and readily make important information available for legal and tax purposes.

While recordkeeping can be challenging, having clear records of your employee payroll, expenses, income, accounts, and tax documents can help you monitor your company's progress and give you peace of mind.

In summary, recordkeeping is the foundation of financial management, bookkeeping is the systematic recording and tracking of financial transactions, and accounting provides insights into a business's financial performance. All three are essential for effective financial management and decision-making. Find out more about the difference between accounting and bookkeeping.

Reasons and Importance of Record-Keeping in Business

Recordkeeping is necessary for the efficient and effective management of businesses in the UK. By maintaining accurate and up-to-date records, your business can comply with legal requirements, manage finances effectively, plan for the future, and ensure compliance with regulations and policies.

1. Pay taxes

Maintaining good business records is important, especially when it comes to tax season since you will require documentation to support your filing. It’s a good idea to keep your records up to date as nasty fees and taxes can come your way if you don’t. Additionally, HM Revenue & Customs (HMRC) may request to view your company’s past records if there are any tax-related issues. Generally, you need to keep your Value-Added Tax (VAT) records for at least six years — or five years from your tax return’s last filing date.

2. Comply with laws

Maintaining organised records means that you can effortlessly retrieve information whenever it is required. Although you may not necessarily refer to invoices from years ago, some situations may arise that require past paperwork. For instance, you will be asked to gather the necessary information if the HMRC audits you.

3. Prevent theft or fraud

Small and medium-sized businesses are more susceptible to fraud than big organisations, and the consequences can be far more damaging. The types of fraud you should be aware of include theft, asset misuse and financial statement fraud. To prevent this from happening, do a regular audit of your business records, which can help you detect theft or fraud to prevent losses.

4. Have quick access to customer and employee information

Proper record keeping ensures that businesses can retrieve important information about their customers and employees quickly and easily when it is needed.

For instance, your business can access customer information easily by keeping records of customer interactions. You can then refer to their contact details, purchase history, complaints, and feedback. You can use this information to provide better customer service, personalise marketing efforts, and track customer satisfaction.

You can also access employee information such as contact details, employment history, performance evaluations, training records, and benefits. This information will help you to manage employee schedules, provide training and development opportunities, and make informed decisions about promotions and terminations.

Types of Business Records To Keep

Running a business in the UK requires you to keep various records to stay compliant with legal requirements and effectively manage your operations. Failure to keep proper records can result in financial penalties and legal consequences. This is why it is so important for you to understand the types of records you need to maintain.

1. Accounting

It is important to keep accounting records. Otherwise, HMRC can penalise you with a fine of £3,000 or even disqualify you as a company director. The required information for your accounting records includes:

• Information of all assets owned by the business;
• All the money your business has received and spent;
• Debts the company is owed, or owes.

2. Stock

To make sure your ecommerce business always has enough stock on hand, you should keep tabs on the details of your stock. Trust us – this will make your job much easier, especially when the financial year ends.

Additionally, you should maintain records of:

• Details of your purchasing and selling history;
• All the stocks you have purchased and sold;
• The stock takings you used to calculate your stock figure.

3. Other financial records

To file your accounts and tax returns, you will need the following financial information:

• Information on all the money your business has received through sales books, contacts, invoices, and till rolls.
• Information on all the expenses your business has spent, including petty cash books, receipts, orders and delivery notes.
• Any other relevant documents, including bank statements and correspondence.

4. VAT records and returns if the business is VAT-registered

Since 1 April 2021, VAT-registered businesses in the United Kingdom over the VAT registration threshold of £90,000 are required to keep relevant VAT records digitally under the Making Tax Digital (MTD) rules. This rule applies to the first complete VAT return form or after 1 April 2021.

To avoid penalties, you are required to store the following digitally:

• Designatory data;
• Business trading name;
• Business address;
• VAT registration number;
• VAT accounting schemes used;
• Supplies made and received;
• Supplies by third parties;
• Reverse charge transactions;
• VAT return information.

For details of your company’s obligations to maintain a digital version of VAT records, you can refer to the regulations and HMRC notices or directions issued to you. You will be required to preserve the digital records in the functional compatible software, for at least 6 years. In the case of VAT deregistration, you will have to preserve your records for up to 6 years. If your business is in scope for MTD, the records that are relevant to the period between mandation and deregistration must be kept digitally for up to 6 years.

5. Employment records

As a business owner, you are required to maintain the following employment records:

• The amount you pay your employees and the deductions you make;
• The reports and payments you make to HMRC;
• Employee sickness absences and leave;
• Tax code notices;
• Taxable benefits or expenses;
• Documents under the Payroll Giving Scheme, including the employee authorisation forms and agency contract.

You are required to report accurately in your records, and maintain them for three years from the end of the corresponding tax year as HMRC may run a check on your records to ensure you are paying the correct amount of tax. Failure to maintain full records may result in HMRC working out an estimate of the amount you have to pay, on top of a penalty of up to £3,000.

You should also preserve any documents related to employees' benefits including:

• Jobseeker’s Allowance;
• Statutory sick pay;
• Social security benefits;
• Statutory maternity;
• Paternity pay;
• Adoption pay.

Business Record-Keeping Methods

There are no hard and fast rules to dictate how you should maintain your records — as long as they are complete, accurate and readable by HMRC. You can store your records on paper or digitally.

However, storing your business records on paper may make it susceptible to incidents such as coffee spills or accidentally clearing them out. In the age of digital advancement, the most efficient storage method would be to store them digitally or as part of a software program.

Paper Method

For paper records, consider making digital copies as backup. You can easily scan paper records to your computer, download documents that are already digital, or simply take photos and upload them to your computer for storage.

Digital Method

To store digital copies of your invoices with an accounting transaction, you can use accounting software. However, you should make security arrangements to make sure that your records are kept safe and cannot be tampered with. Since these records are kept electronically, there is no need for you to maintain the physical copies of source documents to support your business transactions when it comes to tax season.

Where Should I Keep My Business Records and Registers?

Unless you notify Companies House, it will be assumed that all records and registers are kept at your company’s registered office address. However, if it is not convenient for you to hold certain records for inspection at your company’s registered office address, you can choose to keep some of the records, or all of them, at a Single Alternative Inspection Location (SAIL) address.

If you choose to keep any statutory records at a SAIL address, you will have to notify Companies House. Additionally, you will also have to confirm which records are kept there. In the event that you move any of the records, you will have to notify Companies House immediately. Whenever you file an annual confirmation statement, you will also have to confirm the location.

How Long Do You Have To Keep Business Records in the UK?

Business records should be kept for at least six years from the end of the financial year they relate to, regardless of where you choose to store your records and registers.

Limited Companies

For limited companies, you will have to maintain records for a minimum of six years from the end of the last company financial year the records correspond to, or an even longer period if:

• Your company has purchased something you expect to last for over six years, such as machinery or equipment.
• Your records show a transaction that covers more than one of your business’s accounting periods.
• You submitted your Company Tax Return late.HMRC has embarked on a compliance check into your Company Tax Return.

Self-Employed

If you are self-employed, you need to maintain records for a minimum of five years after the relevant tax year’s submission deadline on 31 January.

What Happens if I Don’t Keep My Business Records?

In the event that your business records are not retained, you can face some serious consequences, including:

• Financial penalties: If your business fails to keep the required records or does not keep them for the required period, you could face financial penalties from HMRC. HMRC may ask you to try and recreate the documents, but financial penalties of up to £3,000 could be imposed should you fail to produce the required records when requested.
• Legal consequences: Failure to keep accurate records can result in legal consequences, including fines, court orders, and even imprisonment in severe cases.
• Loss of credibility: Poor business record-keeping can lead to mistakes in financial reporting, which can harm your business's reputation and credibility. This can result in a loss of trust from your investors, customers, and suppliers.
• Missed opportunities: Without proper record-keeping, your business may miss out on opportunities to identify areas for improvement, reduce costs, or optimise your operations.

If your business records have been stolen or lost, you should inform HMRC right away.

To Wrap Up

Keeping accurate and up-to-date business records is essential for the success of any business in the UK. Failure to keep proper records can result in financial penalties, legal consequences, and a loss of credibility. Prioritise your record-keeping to keep your business compliant and position yourself for long-term success.