Whether you’re running a limited company, a sole trader, or managing payroll, keeping proper records is crucial for staying compliant with HMRC requirements. Not keeping records could lead to penalties and a lot of stress! Let’s break it down by type of business:
Limited Companies 🏢
As a company director, you’re responsible for keeping all company-related documents for **6 years** from the end of the last financial year. These include:
- Sales documentation 💸
- Business expenditures 🛒
- Personal income 💵
- VAT & PAYE records if applicable
- Business assets 🏢
- Loans secured against assets
- Shareholder transactions
- Money in and out of the business 💰
Example
If your accounting period ends on 31 May 2022, you need to keep those records until 1 June 2028.
⚠️ Special cases:
Hold onto records longer than 6 years if:
- The transaction covers more than one accounting period.
- Equipment is expected to last longer than 6 years.
- You submitted a late company tax return.
- HMRC is conducting a compliance check.
Self-Employed / Sole Traders
If you’re a sole trader, the rules are slightly different. You must keep your records for 5 years after 31 January following the relevant tax year. The types of records you should retain are similar to those of a limited company:
- Sales and business income
- Expenditures and purchases
- VAT & PAYE (if relevant)
⚠️ Important: If HMRC starts an investigation, keep your records until they notify you otherwise.
Employers
For employers running payroll (PAYE), records need to be kept for 3 years from the end of the tax year to which they apply. Keep the following:
- Tax codes
- Payments to employees and HMRC
- Sick leave, annual leave records
- Taxable benefits
- Pension info and taxable expenses
How Long Should Different Accounting Documents Be Kept? 🗂️
Not all documents have the same retention period. Here’s a quick guide:
| Document Type | Limited Companies | Sole Traders | Employees |
|---|---|---|---|
| Employee Insurance | 3 years | N/A | 3 years |
| Pension Information | 3 years | N/A | 3 years |
| General Correspondence | 3 years | 3 years | 3 years |
| Billing Documents | 6 years | 5 years | N/A |
| Audit Reports | 6 years | 5 years | N/A |
| Land Ownership Documents | Indefinitely | Indefinitely | Indefinitely |
| Tax Returns | 6 years | 5 years | 22 months after tax year |
How to Store Records
Digital is the way to go! Use accounting software like Xero, FreeAgent, or QuickBooks to make your life easier. It saves space and makes documents easier to find when needed. You can still store physical records, but make sure they are organised by date or category.
HMRC Penalties
If you don’t keep proper records, HMRC might fine you. Here’s what you could face:
- First-year traders: £250
- First offence: £500
- Deliberately destroyed records: £1,500 to £3,000
Conclusion
Staying compliant with HMRC’s record-keeping rules is a must for any business. Need help? Reach out to an accountant to avoid unnecessary penalties and ensure your records are in order.
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By following these guidelines, you’ll stay on the right side of the law and save yourself from headaches (and potential fines!). 📝
