Accounting records – what should I keep and for how long?

Proper record keeping is essential for businesses to ensure compliance with both legal obligations and tax regulations. For limited companies, partnerships and VAT registered businesses, maintaining accurate records can prevent penalties, aid in tax calculations and support compliance with the Companies Act and HMRC requirements. Here’s a breakdown of the key record keeping requirements for various business entities in the UK.

Limited companies

UK law requires limited companies to keep detailed records of all transactions to provide an accurate picture of their financial position. These records must include daily transaction entries, details of income and expenses and a record of assets and liabilities. Companies selling goods must also keep stock records and details of all sales and purchases including information about buyers and sellers.

Records must be retained for at least three years for private companies and six years for public companies. Failure to maintain adequate records is a criminal offense, potentially punishable by fines or imprisonment. Directors must ensure that records are complete and compliant with the Companies Act.

HMRC requirements for businesses

Apart from the requirements under the Companies Act businesses must also meet HMRC’s record keeping standards. Companies need to retain additional financial records including bank statements, invoices, contracts and any estimates used in annual accounts and corporation tax returns. These records are crucial for justifying tax liabilities if HMRC conducts an inquiry.

All records relevant to tax calculations must be kept for a minimum of six years. However, if tax returns are filed late or if HMRC opens an investigation, records must be retained until the inquiry concludes.

Individuals and partnerships

Individuals and partnerships have similar requirements to limited companies. Partners share the responsibility for keeping accurate records and filing partnership tax returns. They must retain records supporting their tax returns such as dividend vouchers and interest statements for at least five years after the January 31 submission deadline of the relevant tax year.

VAT registered businesses

VAT registered businesses must keep records of all sales, purchases and VAT related documents such as invoices, credit notes and import/export documents. A VAT account must record all VAT charges, reclaimable amounts and any adjustments. VAT records generally need to be kept for six years although records for bad debt relief need only be retained for four years.

Employers

Employers are required to keep payroll records including wage payments, tax deductions, benefits and employee leave. These records should be kept for three years after the tax year ends.

Record format and digital compliance

Records can be kept in physical, electronic or software formats, but they must be accessible in a readable form. Under Making Tax Digital VAT registered businesses must maintain digital records with other taxes potentially following in the future.

If you have any questions regarding your record keeping, please get in touch with your Swindells partner who will be able to advise you further.