Whether you’re a sole trader, a limited company or a partnership, keeping records of all of your financial transactions is an essential part of running the business and a legal responsibility for company directors.
Essential record keeping includes financial and accounting records as well as those about the business itself. However, some businesses are unaware of the requirements for keeping these records not only during the period of time that they relate to, but also for several years afterward.
In this article, we look at how long small businesses in the UK need to keep their financial records and why.
The number of years to keep business financial records
In general, businesses must keep their financial records for at least six years from the end of the company financial year they relate to. For example, if your accounting period finished on 31st December 2019, you’ll need to keep the records relating to that year until at least 1st January 2025.
However, there are exceptions to the six-year rule, which include:
- If your records show a transaction that covers more than one accounting year
- If the company buys something that it expects to last for longer than six years, such as machinery or other equipment
- If the company tax return was submitted late
- If HMRC has begun a compliance check into your company’s return(s)
For sole traders, the required period of time to store your financial records is currently five years, rather than six. Due to the way self-assessment works, that means you need to keep them for at least five years from the 31st January following the tax year to which the records relate.
For example, for the tax year that ends on 4th April 2023, you’ll need to keep the records until at least 1st February 2029 (five years after the self-assessment deadline for that tax year).
How can the records be stored?
Back in the day when all records were on paper, it was a matter of keeping hard copies of everything and physically storing it somewhere safe for the required period of time. Thankfully, the digital age enables us to store pretty much all records digitally, rather than needing paper copies. Invoices, receipts, bank statements, loan paperwork and all other kinds of records can be stored digitally, although it is necessary to have backups stored in a different place (which can also be digital) just in case something happens to your original digital records, such as data corruption, theft, loss or damage.
What happens if a business fails to store records for the required period of time?
While many businesses will never need to use their stored records, if HMRC asks to see any of them and you cannot produce them, your business can be charged a penalty. The amount will depend on the severity of the offence.
In addition to a financial penalty, if you fail to keep the records required by law, you are also in breach of your director responsibilities and could be disqualified.
Help with keeping small business financial records
An experienced accountant can help ensure that you are keeping the required financial records to ensure accurate bookkeeping, accounting and tax returns, along with helping you meet the requirements for the length of time needed. Get in touch with us if you’d like our help with your small business record-keeping and accounting.