How long should you keep your accounting records?

Why do you need to keep accounting records?

Keeping accurate accounting records is necessary for any UK business as it ensures compliance with HMRC tax laws and avoids penalties and legal issues.

To meet tax obligations, you need to keep documents on the following:

• Income tax: Income and expense records.
• Corporation tax: Comprehensive income and expense records, payroll, and asset details.
• VAT: VAT invoices, sales and purchase receipts, and scheme records.
• Pay as you Earn (PAYE): Employee salary, wage, deduction, and contribution records.

What accounting records do I need?

To satisfy HMRC accounting record-keeping requirements, you need to keep the following accounting records: 

• Source documents
• Sales and purchase records
• Cash book
• General ledger
• Inventory records
• Payroll records
• Asset register

How long should I keep accounting records?

Knowing how long to keep accounting records is important for new and existing businesses.

In the UK, HMRC generally requires businesses to keep their accounting records for at least six years from the end of the last company financial year they relate to. 

There are some exceptions where you may need to keep company records longer. For limited companies, specific records, such as company minutes and resolutions, must be kept for 10 years.

What is the best way to keep accounting records?

Traditional bookkeeping methods involve manual ledgers and journals, but technology has transformed accounting, making digital accounting records the most efficient and reliable method for most businesses.

Accounting software automates tasks, reduces errors, and provides valuable insights through detailed reports, and cloud-based accessibility means you can manage your finances anytime, anywhere.

Popular UK options include Xero, known for its user-friendly interface; Sage, a well-known provider with various solutions; and Quickbooks, offering comprehensive features.

What should you do if your accounting records are lost, stolen or destroyed?

If you no longer have your accounting records, contact HMRC immediately and inform your corporation tax office or the self-assessment helpline about the situation. Explain the circumstances of the loss, theft, or destruction and ask for guidance on how to proceed. 

Check for any backups, copies, or alternative sources of information that can help reconstruct your records, and use any available information to reconstruct your accounting records as accurately as possible. 

HMRC understands that records can be lost or destroyed due to circumstances beyond your control, but failing to maintain adequate records can result in penalties. These could include fines, estimated tax assessments, and potential legal action. 

If you disagree with a penalty imposed by HMRC, you can appeal. You must do this within 30 days of the penalty notice. In your appeal, explain the reasons for the loss or destruction of your records and any efforts you've made to reconstruct them.

While you're responsible for maintaining your own records, you may also wonder, 'Do banks keep records of closed accounts?' The answer is yes, typically for five to 10 years.

What else do limited company directors need to do?

Other than accounting records, limited company directors must take the following factors into account when meeting their obligations.

1. Companies Act 2006: This legislation outlines the legal duties of directors, including acting in good faith, promoting the company's success, exercising independent judgment, and avoiding conflicts of interest. 

2. Filing obligations: Directors must ensure the company fulfils its filing obligations with Companies House, including annual accounts, confirmation statements, and any changes to company information.

3. Tax compliance: Directors are responsible for ensuring the company complies with all tax obligations, including corporation tax, VAT, and PAYE, and submitting accurate returns and making payments on time.

4. Data protection: With GDPR in effect, directors must ensure the company handles personal data responsibly and complies with data protection regulations.

5. Health and safety: Directors have a duty to ensure the health and safety of employees and anyone affected by the company's operations. This includes providing a safe working environment and complying with health and safety legislation.

6. Employment law: Directors must adhere to employment law when hiring, managing, and dismissing employees.

7. Environmental regulations: Depending on the nature of the business, directors need to be aware of and comply with environmental regulations, such as waste disposal, pollution control, and energy efficiency.

8. Corporate social responsibility: Increasingly, stakeholders expect companies to demonstrate ethical and responsible behaviour. Directors should consider the social and environmental impact of the company's activities.

9. Keeping up-to-date: Legislation and best practices are constantly evolving, and directors should stay informed about changes that might affect their company and seek professional advice when needed.

Get expert financial advice

For UK businesses, maintaining accurate and accessible accounting records is critical. Proper record-keeping is not merely a compliance exercise; it's an essential tool for informed decision-making and business success.

Let Unbiased match you with a qualified financial adviser or accountant to find tailored guidance, ensure you meet your legal obligations, and help you navigate the complexities of business finance.