Do you ever look at piles of documents laying on your desk or hidden in your draws and think how great it would be to throw everything away just to free up the space? 

But every time you think about it, something stops you. And that something is your inner voice telling you “what if I will need it?” 

And that’s absolutely right! There are some documents that you can go years without looking at but it’s still very important to retain them. This includes things like tax, employee and health and safety records. 

Failure to keep the right documents can cost you time and money and in some cases can even lead to a fine or imprisonment. 

This article highlights the essential records most business owners must keep. However, depending on the nature of your business, there might be other documents that should be retained. So before you throw any of that paperwork away, do thorough research or speak to a professional, such as a business advisor. 

Tax records

No matter whether you’re a sole trader, run a limited company, partnership or unincorporated association, you must keep records of all receipts and expenditures for tax purposes. 

You can choose how you want to keep those records – digitally or on paper. However, HMRC has introduced a Making Tax Digital scheme, which means that from April 2024, certain tax records will have to be stored digitally. 

To find out when you must sign up for the scheme or to sign up voluntarily now, click here.

But what exact record you must keep? It will depend on the type and size of your business but in most cases, HMRC expects you to have:

• A record of all business income
• Bank statements and paying-in slips
• A record of all purchases and sales of business assets
• Invoices for purchases and other expenses
• A record of the money you take out from the business account for personal use as well as any money paid in from personal funds

All these records are essential, so you can complete a precise and accurate tax return. 

How long do you need to keep those documents?

• If you’re self-employed, you must keep it for five years from the 31st January following the end of the tax year
• For those who run a limited company, you must keep it for six years from the end of the accounting period you cover, or in some cases for longer. If HMRC launches an enquiry into a filed tax return, the records relating to that return must be kept until the end of that enquiry period. 

Moreover, if you have employees, you must keep records of wages and other payments as HMRC may inspect those.

Want to avoid a fine of up to £3,000? Make sure you keep adequate tax records!

If you need any further information about the tax records you must keep, click here.

VAT documents

Value-added tax is a tax applied to purchases of goods or services and is paid at each stage of the production and distribution chain. 

VAT is a complex subject, so to avoid any confusion and ensure you comply with VAT rules, it’s best to seek professional advice or contact HMRC for guidance and support.

Is your business registered for VAT? Any businesses, including sole traders, limited companies, partnerships, charities and trusts, must register for VAT if their taxable turnover is more than £85,000 over the last 12 months or if it will be more than £85,000 in the next 30-day period. You can also register voluntarily before your taxable turnover reaches the mandatory threshold.

If your business is registered for VAT, you must keep records of the VAT documents. Many of those documents will be the same as the ones you keep for general tax and accounting purposes.  

Unless you’re exempt, VAT documents should be kept electronically and include the following:

• Copies of all invoices you issue and receive
• Self-billing agreements (where the customer prepares the invoice)
• Name, address and VAT number of any self-billing suppliers
• Records of any good you give away or take from stock for your own private use
• Import and export records
• Records of items you cannot reclaim VAT on, such as business entertainment 
• Debit or credit notes
• Records of all the zero-rated, reduced ow VAT exempt items you buy or sell
• A VAT account
• General business records including bank statements, cash books, paying-in slips and till rolls 

How long do you need to keep VAT documents? 

VAT records must be kept for six years after the end of the current year.

Record-keeping requirements for limited companies

Limited companies have different requirements and responsibilities when keeping their records.

All their accounting records also have to be filed with Companies House. Most company accounts submitted to Companies House must contain a directors’ report, a profit and loss and a balance sheet. For larger companies, they must also include an audit report, notes and consolidated group accounts. 

Moreover, some of the documents you keep must be open for inspection. Any member of the public is allowed to see a copy of the company’s register of members, while the members of the company can also inspect and have copies of the minutes of the company’s general meeting. 

Employment documents

If your business has employees, there are a number of documents you’re required to keep, including:

• PAYE and payroll records. These need to keep for 3 years from the end of the tax year they relate to. The exact records you need to retain include
  • What you pay your employees and the deductions you make
  • Reports you make to HMRC
  • Payments you make to HMRC
  • Employee leave and sickness absences
  • Tax code notices
  • Taxable expenses or benefits
  • Payroll Giving Scheme documents

The failure to keep these documents can lead to a penalty of up to £3,000

• Proof that you pay your employees at least National Minimum Wage or National Living Wage. This could be a record of hours worked and total pay. These records must be kept for at least six years
• Records of accidents. They have to be kept for at least three years
• Records of pension scheme payment. You need to keep those for at least six years
• Depending on the nature of your business and the number of employees you have, you might be required to keep health and safety records

There are also some documents that you’re not required to keep but it’s a good practice to do so. For example, keeping interview notes and other documents relating to unsuccessful job applications can help you defend yourself if someone makes a claim to an employment tribunal. 

If you need more help figuring out what documents you must keep for YOUR business, have a chat with our business advisors! Book your appointment now!