Keeping the right financial and accounting records is a legal requirement for your business and HM Revenue and Customs. It is generally the company directors’ responsibility for limited companies to keep accurate accounting records.
If you run a business, then the accounting records you need to keep include bank statements, invoices, receipts, PAYE records, details of income & expenditure, and records of any assets the company owns. Other assets owned, including money owed, stock in hand and money the business owes, should be included.
Limited companies are also required to keep what are known as statutory records, often referred to as company registers. These include the register of company secretaries and company directors, shares documents relating to the company, board meeting minutes, written members resolution, register of persons with significant control, and register of loans mortgages secured against the company’s assets.
What is the purpose of keeping business and accounting records?
Whether you are self-employed or a company director, the primary purpose of keeping financial records is to ensure that your tax returns are accurate for the relevant tax year.
Record keeping ultimately is the business owners’ responsibility as part of dealing with their tax affairs. This applies to all taxes, including income tax, corporation tax, PAYE and VAT.
A company director has more strict account-keeping requirements and needs to keep records on behalf of the company.
Types of accounting records to keep
Business records for self-employed and limited companies need to show the business income and business expenses in an accounting period.
At Spotlight Accounting, we recommend that all businesses have a separate bank account so that, as well as invoices and receipts, the bank account will clearly show money coming in and out of the company. Many businesses benefit from a bookkeeping service where a business has cash receipts and expenses, petty cash books should be maintained.
These records then need to be written up to be able to produce the financial statements for the accounting period. We recommend using software such as Xero to do this, as it saves you time that, let’s be honest, could be better spent than inputting data into excel.
Records also need to be kept for personal income, including bank interest certificates, dividend vouchers, P60’s and P11d’s.
VAT registered businesses need to keep more detailed business records as part of making tax digital for VAT. Whilst invoices and receipts can be kept manually, most VAT records must be kept in a digital format and returns filed using compatible software.
Complete annual PAYE returns include employees’ pay, tax and national insurance contributions, statutory pay, expenses and benefits, tax code notices, leave and sickness absence, and returns and payments made to HMRC.
How should you file your accounting records securely?
HMRC will accept digital records, and with the rollout of making tax digital, they will likely require digital record-keeping in the long term.
So whilst you can keep your manual receipts and invoices boxed up in the store room, we recommend using Xero or Dext to keep records.
How long should accounting records be kept?
Records must be maintained for 5 years after the 31st January deadline following the tax year. So, if you have a year-end of 31st March 2023, that would be reported on the 2022/23 tax year, which is due by 31st January 2024.
5 years from this is 31st January 2024, so you must keep your business records to this date.
Rules for a limited company are different. They must keep business records for 6 years from the last accounting period that they relate to.
So if a company purchased a van in the financial year ending 30th June 2022 and kept the van until 31st December 2026, the last financial year this related to would be 30th June 2027. The limited company directors must keep any loan, hire purchase and expense records relating to the van until 30th June, 2032.
At Spotlight, this is why we ask for fixed asset invoices and loan agreements when we complete company tax returns. Limited company statutory records, including the company register, also have a Companies House requirement to be maintained for 10 years.
VAT records must be kept for at least 6 years but will form part of the business and accounting records for the accounting period of a personal or company tax return.
HMRC require records to be kept for three years after the end of the relevant tax year. However, minimum wage calculations must be kept for 6 years following the pay period.
Do you need to keep physical bank statements, or is digital fine?
Digital copies are acceptable by HMRC, and the bank statement feed into accounting software does not replace the requirement to keep digital statements.
What happens if you lose any accounting records?
If business records are lost, for example, in a flood, you must try to recreate them and tell the tax office and notify HMRC on your tax return. This is another reason why digital records are more secure.
Who inspects these records?
HMRC have the right to inspect these records within the required notice period. If the business is under HMRC inspection, then the business may have to keep the records for longer.
Shareholders can also inspect a limited company’s statutory records as long as there is an adequate notice period.
Can you use accounting software to keep business records?
We always recommend using accounting software, as it saves time, and the documentation is more securely stored than a big box of receipts in a storage cupboard.
With different HMRC and Companies House requirements, it can be confusing how long business records need to be maintained and what record keeping is required.
At Spotlight Accounting, we work with our clients to ensure they understand what records they need to keep and where we can assist with complete bookkeeping . Using Dext and Xero ensures correct record keeping is done and maintained.