Some of the most important documents you should keep if you’re registered as self-employed or own a business are your tax records. But, there are also many other types of records that are important to keep, and without them, you can find yourself struggling to complete your accounting and financial obligations. But surely you don’t have to keep hold of this information forever? In fact, HMRC can fine you or your business up to £3,000 or disqualify you as a company director if you cannot produce records when asked, or don’t keep your accounting records without a valid reason.
We’ve provided all you need to know on tax records and other important record types so you’re never left panicked because you threw out that all-important tax record too early.
Important records to keep if you’re a sole trader
If you’re self-employed, HMRC recommends that you keep a hold of:
- Any sales or income you receive
- All business expenses
- Any VAT records (if you’re VAT registered)
- PAYE records (if you have employees)
- Personal income records
- Grants received if you claimed the self-employed income support scheme
Keeping these records is very important to ensure that you’ve recorded the correct amount of profit and loss when you submit your tax return, and to provide them to HMRC if you’re ever investigated or asked to produce them. Apart from being asked to show them to HMRC, you shouldn’t need to submit the above-listed records to HMRC but they’re needed for you to accurately work out your profit and loss each tax year.
A good way to keep records of your expenses is to record receipts in the form of a scan rather than physical paper copies. Paper receipts can easily be lost and are harder to track, whereas scanning your receipts regularly as part of your weekly admin can make submitting your tax return easier, and if you’re ever investigated by HMRC, you can produce any expense receipts for a particular month or week in a speedy manner. Crunch has a ‘SnapApp’ available for Crunch clients which allows you to easily ‘Snap’ a picture of your receipts on the go and automatically upload it to your Crunch account, making bookkeeping and saving records simple. Once you have recorded your receipt in your Crunch account, you can throw away old receipt records as it’s backed up in your account. We also have our ‘TripCatcher’ app which is a great way to record and upload your business mileage to record for claiming business mileage expenses at a later date.
Important records to keep if you own a limited company
As a limited company owner, you have responsibilities to keep certain records and produce them to HMRC if requested, investigated, or for tax purposes.
The important records for a limited company owner to keep are:
- Directors, shareholders, and company secretaries
- Results of any shareholder votes and resolutions
- Any transactions of someone purchasing shares in the business
- Loans or mortgages against the companies assets
- Guarantees from the business to pay back loans by a certain date and to who they must be paid directly to
- Guarantees from the business that they’ll make the payment if something was to go wrong and it’s the business’s fault
- Any records about the business
- Any accounting and finance records
- Money received or spent by the business (including any grants or scheme payments)
- Information on any assets owned by the business
- Debts that the business owes or is owed by others
- Goods sold or bought
- Details of who you sold them to or bought them from (not required if you run a retail business)
- Stocktakings used to work out the business’s stock
- Amount of stock the business owns by the end of the financial year
- Plus, any information or financial records that’ll be required to accurately complete and file your annual accounts and company tax return - money spent by the business such as receipts, petty cash records, or orders, money received by the business such as invoices, contracts, sales books, and other relevant documents such as bank statements or correspondence.
It’s also vital to keep any records of people with significant control (PSC) in the business. Your business’s PSC register must include anyone who:
- Can influence, have a say, or control your business/trust
- Has the power to appoint or remove a majority of directors
- Has over a 25% share or voting rights in the business.
You can find more information about recording a PSC register on HMRC.
Note: If any of these records are kept somewhere other than the registered office address known by Companies House, such as the business owner's personal address or another office address, Companies House must be made aware.
How long should you keep your records for
If you’re self-employed, HMRC recommends that you keep your records for a minimum of five years after your last 31st of January tax return deadline. For example, if you submitted your 2021/22 tax return on the 31st of January 2023, you’ll be required to keep your tax records and other important records until at least January 2028.
However, if you submit your return extremely late, such as four years after the deadline, you MUST keep your records for at least 15 months after you’ve filed that tax return.
For limited companies, HMRC recommends keeping your records for at least six years. However, if you have any specialist equipment or machinery that has an expected use date of longer than six years, then you’ll need to keep any records for this equipment until its expected use-by date.
Some other reasons you may need to keep your records longer are:
- The records show a transaction period that covers more than one of the business’s accounting periods.
- Your company tax return was sent late
- HMRC has begun a compliance check into your business’s tax return.
What happens if you don’t keep these records and need them
Obviously, we’d recommend that to start with you’re always backing up your records and making copies. You can do this by scanning all documents into your computer and filing them monthly or by record type. You can also use online accounting software where you can record all invoices, bank statements, income, and expenses. As mentioned previously, Crunch’s accounting subscriptions provide all of these services as well as our ‘SnapApp’ and ‘tripcatcher’ app for on-the-go expense recording.
If however, this fails and you don’t have backup options to revert to, you can use ‘provisional’ or ‘estimated’ figures. Stating that it’s ‘provisional’ means you’ll be able to get the paperwork to HMRC to confirm your figures later. However, ‘estimated’ means you’ll not be able to confirm the figures, so the paperwork is lost or there are no backup versions available.
When submitting your tax return you’ll need to select the ‘any other information’ box to state that this is what you’re doing, and you’ll often need to provide approximate dates. If due to providing ‘provisional’ or ‘estimated’ dates and figures, HMRC finds these dates or figures to be extremely incorrect, it can result in interest payments or penalties from HMRC. This is why having your records recorded and accurately submitted on your tax return is so important.
How to store your records
Good bookkeeping practice is the best way to ensure you’re storing your records correctly. Being in the correct mindset and routine is the easiest way to do this by implementing a day for bookkeeping each week (depending on the volume of records weekly). There are many benefits to doing this, such as having records organised and stored in the case of HMRC investigation/requests and saving you time when it comes round to submitting your tax return.
So what is the best way to store your records? Bookkeeping software!
Getting yourself and your business set up on good and easy bookkeeping software is a great option. Most bookkeeping software is usually cheaper than paying for a traditional accountant and avoids the risk of any records being lost between you and your accountant. You can use bookkeeping software to store records of your expenses, produce invoices, open banking/statement upload, and many other features. It’s easy to use if you’re self-employed and running your business alone.
Crunch offers all of these amazing bookkeeping features, as well as many more in our Crunch subscriptions to make your accounting and finance simple. We also have a bookkeeping service where our qualified accountants can bring your bookkeeping up-to-date, getting you organised so you can focus your time and energy on your business.
Getting the correct advice when it comes to your accounting and finance is extremely important. At Crunch, we have a team of experts here waiting for you. Whether you have a question about the Crunch software and need to speak to an advisor, or you have a more accounting and financial-related query and would love to book some time in with a real qualified accountant, we can support it all.
Get in touch with us today for trusted and reliable advice on corporation tax filing. We've also got an extensive range of helpful resources, from debunking limited company tax to helping sole traders understand what tax they owe, all available to explore online now at Crunch.