As the owner of a small business, you are responsible for many administrative tasks, but there is probably none more important than paying taxes. Although it sometimes seems like you only need to worry about taxes one day out of the year, that’s not technically true. Those who are self-employed should complete comprehensive bookkeeping and store all their relevant business records, continually throughout the year but how long does a business have to keep their records for?

Why are records kept?

One of the main reasons why business owners should keep accurate records is they provide vital information, that will be needed when completing self-assessment. The process of self-assessment can be complicated and requires specific details on income, expenses, turnover, profit etc. Therefore, recording information and retaining relevant documentation throughout the working year, makes tax season much easier.

The other reason why businesses need to keep records is because of the potential of a HMRC tax investigation. These investigations are uncommon, but they can happen, either as a routine check or if HMRC has noticed an error with your return. If an investigation is started, HMRC will want to see relevant evidence for your data.

How Long For?

The length of time that business owners are required to keep their records for differ, between those who are self-employed and those who own limited companies.

Those who are self-employed and complete self-assessment must keep hold of their records for at least five years after the tax deadline of the relevant year. For example, those who file their 2019-2020 tax return before the deadline of 31st of January 2021, will have to keep their records until 31st January 2026.

The process for limited companies is slightly more complicated, as is often the case. The general rule is that you will have to keep your records for six years after the relevant deadline date. However, there are also instances in which records need to be kept even longer. These include:

  • When the records show a transaction that covers multiple accountancy periods.
  • When the company has purchased something that will last longer than six year.
  • When the company files their tax return late
  • When/if HMRC investigates a tax return

What records are kept?

We continue to refer to these “records” but what do we actually mean? Fortunately, HRMC have compiled a list of the records that those who are self-employed are required to keep hold of. They include:

  • All information on sales and income.
  • All business expenses.
  • VAT records (only if you’re VAT registered).
  • PAYE records (if you have employees).
  • Records on personal income.
  • Records of your grant from the Self-Employed Income Support Scheme (if it applies to you).

Retaining these records doesn’t just mean uploading data, you also need to hold on to evidence to support this information. Evidence can include a wide range of documentation, from receipts, invoices and bank statements, to till rolls. When in doubt, always err on the side of caution, it’s better to have too much evidence, than not enough.

It’s worth noting that those who use traditional accounting will have to keep other records, beyond the standard evidence already mentioned. These include:

  • Information on what you are owed but haven’t received yet.
  • Information on spending commitments that have yet to be paid.
  • The value of stock and work in progress at the end of your accounting period.
  • The year-end bank balances.
  • Information on how much you have invested into the business throughout the year.
  • Information on any money that has been taken out of the businesses, for personal use.

Continually keeping track of so many records can be arduous and time-consuming. However, implementing a record-keeping system and committing to it will not only streamline the process but also ensure you comply with any potential requests from HMRC. If you have lost any records and are concerned, you can get in touch with HMRC, and they will instruct you on the best course of action.