How long should I keep business records for?

Contractor’s Question: For IR35, and other HMRC or Companies House-related purposes, how long should I keep business records for? If it helps to know, I set up my limited company a year ago, in January 2020.

Expert’s Answer: All limited company directors must keep records for the past six years of their business. The clock on these six years starts from the end of the last company financial year.

If you launched a year ago...

If you started trading in January 2020, but now find yourself looking to close your company, you are required to file a set of company accounts covering January 2020 – January 2021. You will also need to submit a corporation tax return for this period, only after which we would recommend closing the company. In this instance, the company records will need to be held until February 1st 2027.

The only time where the above timelines may change is if:

• Your company tax return was submitted late.
• Your company tax return is being reviewed for a compliance check by HMRC.
• The business has purchased a long-term item. i.e. company equipment which will exceed the 6-year period.
• Your company tax return covers more than one of the accounting periods.

What do I need to keep recorded for the business?

The company records to keep, include:

• Accounting and Business records

This will cover all the business’s income, company purchases and expenses, liabilities, and bank statements.

• VAT records

A full and complete record of all VAT raised invoices, invoices received, and a log of any company expenses VAT has been claimed for.

• PAYE records

Company salary payments made to employees and deductions should be kept for at least three years. These records (which can be kept digitally, by you or on your accountant’s system) are pertinent for those contractors who operate inside IR35. Also concerning the Intermediaries legislation, specialists have only just recently outlined the four years, and six years, which HMRC has to investigate.

Why is it important to keep these records?

For peace of mind! These are the other reasons it is important to keep these records:  

• For the legal integrity of the business, all files must be kept for the 6-year requirement. It is the law!
• In case you ever need to refer to previous statements and double-check data entry.
• Should any case be raised or queried by HMRC, you have full record of your company’s accounts.
• Gone are the days of keeping big files and shoe boxes full of receipts! Most of the information can now be kept safely online. Online tools (FreeAgent is popular among contractors) can now make logging and storing invoices, expenses and the like simple, and not too time-consuming.  

Remember, as a company director it is your legal duty to safely store the company’s records. Always consult a qualified accountant should you feel your circumstances are out of the norm or you need any further advice.

The expert was Christian Hickmott, chief executive of contractor accountancy firm Integro Accounting.