Financial Records: How long should I keep them, and how best to store them?
Some areas of business, such as expenses, accounting and record-keeping, can become overwhelming. There is a legal obligation to retain accurate financial records, but not all business owners know the exact documents to keep, how to keep records correctly or for how long.
How long should a company keep financial records?
In general, companies need to keep records for six years from the end of the last financial year to which they relate. While this may seem like a long time, within the course of six years HMRC can choose to investigate company accounts, and businesses are obligated to provide accurate records. If a company does not keep the required documents, you can be disqualified as a company director or fined £3000 by HMRC.
HMRC started a compliance check into company tax returns. In the following circumstances, you should keep records for longer than six years:
- The Company Tax Return was submitted late
- There is a purchase for something that would be expected to last longer than six years, such as machinery
- A transaction covers more than one accounting period
What type of records should a company keep?
Companies must keep certain records about the company itself and records regarding the company’s finances and accounts.
Companies must keep records of the following:
- Directors and company secretaries
- All shareholders
- Results of shareholder votes and resolutions
- Transactions when someone purchases shares in the company
- Any mortgages or loans secured against company assets
- Debentures, which are any company loans to be repaid at a specified date in the future along with details as to whom they should payback.
- Indemnities which are the company’s promises for payment if anything goes wrong and the company is at fault
A company must also keep a PSC register of ‘people with significant control’ which includes details of anyone who:
- Can control or influence or control the company or trust
- Remove or appoint a majority of directors
- Has 25% or more shares or voting rights in the company
Even if there are not people with significant control, you are still obligated to keep a record.
Companies must keep records of accounts that include:
- All money that is received by the company
- All money that is spent by the company
- Debts the company owes
- Debts the company is owed
- Stock owned by the company at the end of the financial year
- Stocktakings used to work out the owned stock figure
- Details of all assets the company owns
- Details of goods bought and sold by the company
- Details as to whom products were purchased from or sold to (unless the company is a retail business)
It is also necessary to keep other calculations and records needed to prepare and file company annual accounts and Tax Return, including records relating to:
- Money spent by the company such as petty cash books, order notes, delivery notes and receipts
- Money received by the company such as contracts, invoices, till rolls and sales books
- Other relevant documentation, such as correspondence and bank statements
How to safely store company financial records
If your company records are lost, destroyed or stolen, you must inform your Corporation Tax Office immediately. Include whether the records were lost, damaged or stolen in your company tax return. The Corporation Tax Office requires you to recreate any of the affected documents. In order to avoid this scenario, the following tips will help you keep your financial records safe and secure:
Hiring a bookkeeper
It might be a good idea for your business to employ a trained, experienced bookkeeper to assist with company record keeping. Some benefits of hiring a bookkeeper include:
- Their experience in keeping financial records safe and secure
- Freeing up your time to focus on other priorities
- The expense of a bookkeeper can be a business tax deduction
Backing-up data electronically
HMRC recommends keeping original documents; however, you don’t necessarily need to keep the original paper copies. Most records can be scanned into a computer and held electronically, although HMRC asks for original documents which show tax deductions (for example, an employee’s P60).
It is not difficult to make electronic copies of documents. Provided that all relevant information is clear and legible, it is acceptable to take a photograph of the documents, using a smartphone, for example. Keeping electronic records can be made easy as several applications can be used to scan and store documents.
Here are a few of the popular applications used by businesses for online storage of documents:
- Google Drive
One of the best-known applications, Google Drive, has everything required to scan, save and automatically back up your records safely. Google Drive has a built-in scanning function makes it simple to turn paper documents into electronic PDF documents to be stored.
The Dropbox app has an auto-backup feature which means that every photo taken on your smartphone will be backed up automatically in the cloud for safekeeping. However, there is no option to convert into PDF form with Google Drive.
As an expense management tool, Soldo stores all of your receipts electronically. Soldo’s software integrates with popular accountancy tools such as Xero and Quickbooks, making end of month reporting as easy as possible. Find out more about how Soldo can help improve your financial management here.