Businesses should be aware of the need to keep hold of any paperwork that relates materially to your business operations, such as tax, financial, legal, medical, insurance and employment data. HM Revenue & Customs charge penalties for not keeping adequate records for the required period, which can be as long as three years for Pay As You Earn (PAYE) and Construction Industry Scheme (CIS) documentation. They even go so far as to recommend that businesses keep their records for a minimum of six years.
Now, that could mean a lot of paperwork, depending on the size of your business, but thankfully you don’t have to keep physical copies of everything. A lot of your paperwork can be stored electronically, either from the beginning or after a few years. Just make sure your digital records capture all of the information on each document, both front and reverse, and that you have sufficient back-up plans in place to protect yourself from the risk of records being lost or deleted.
What to File
The specific records you need to keep will vary depending on the type of tax you have to pay. The following are the most common records that you must retain:
- All Pay As You Earn records: Every employer is required by law to keep accurate records of all payments made to employees, deductions made for income tax, national insurance and student loan payments, as well as any statutory payments.
- Sales and takings: You should take care to retain all of your till rolls, sales invoices, bank statements, paying-in slips and accounting records, including cash receipts, so that you can easily demonstrate what you are owed and prove your total income.
- Purchases and expenses: You should also keep all of your receipts, purchase invoices, bank and credit card statements, chequebook stubs, motoring expenses and mileage records and accounting records, including cash purchases, so that you can show what you have spent, how much you owe and what you can claim back for tax purposes.
- Assets, liabilities, income and expenditure: If your business is a limited company, you need to keep all of your accounting and business records, including bank statements, paying-in slips, account books, purchases and sales information, to prove the financial position of your business and comply with the Companies Act. They will also help you to calculate how much Corporation Tax you need to pay or reclaim.
- All VAT records: If your business is VAT registered, you are required by law to keep track of all of your VAT accounts, including VAT sales and purchase invoices, and any import and export documents such as delivery notes. The law needs you to illustrate your VAT inputs and outputs and prove that your VAT returns are accurate.
- Construction Industry Scheme (CIS) records: Under the scheme, if you’re a CIS-registered contractor you are legally required to maintain full records of any payments made, deductions taken and materials purchased by subcontractors for at least the last three years. This will help you to work out your CIS deductions and complete the relevant returns.
- Benefits records: You should also keep on file any paperwork relating to social security benefits, statutory sick pay, statutory maternity, paternity or adoption pay, and any jobseekers’ allowance.
For most of the above, digital copies are sufficient. With documents that require a raised or notary seal, or an original signature, you will need to retain physical copies. Your accountant or lawyer will be able to advise you on which documents you need to keep.
How to File
To keep your paperwork in order and easy to retrieve, you should establish a clear filing system for hard copies, as well as an appropriate digital or cloud storage file. You can then break each file down by year, quarter or month as you see fit. How granular you make your filing system will depend on your business’s specific requirements, so it’s worth asking your accountant what they require.
For your own peace of mind it’s worth keeping your sensitive documents in a fire-resistant filing cabinet for their protection. You should also scan them and keep an electronic copy as a safety measure, either on an external hard drive or on your cloud storage system. This will ensure you can always be able to provide all the relevant information if required.
A thorough filing system is like an insurance policy – it means you’re prepared for the worst, like if the HMRC requests additional information or copies of documents, or if you find yourself in a legal dispute or if medical issues come to light. Good record keeping can also be useful for assessing your business’s financial health, applying for loans, seeking investment, or going after new business.