Which Accounting Records Should I Keep?

Have you ever wondered how long you need to keep paper records such as bank statements and invoices? With everything becoming more digitised, is it necessary to keep anything on paper?

Record maintenance

The good news is that there are no specific rules on what format you need to use for general record keeping such as receipts, expenses and bank statements. However, there are some documents that need to be kept in their original format, according to the HMRC Compliance Manual CH13300. These are:

• dividend vouchers
• bank interest certificates
• construction Industry Scheme (CIS) vouchers.

Apart from the above few exceptions, HMRC state:

‘There are no rules on how you must keep records. You can keep them on paper, digitally or as part of a software program (like book-keeping software). You don’t have to keep the original paper records provided the method you use captures all the information (front and back) on the document and allows you to present the information a readable format, if requested’.

Therefore, maintaining your records in digital format is perfectly acceptable. However, it is your responsibility to ensure this information is protected against data corruption, damage, loss or theft, and so it is essential you have processes in place to save and back it up at regular intervals.

How long should you keep records?

Firstly, there are general rules depending on the type of tax.

Individuals completing a self-assessment return need to keep records for 22 months from the end of the tax year. For 2023/24, you need to keep all records that have contributed to entries in the tax return until at least 31 January 2026. If 2023/24 is submitted late, then the records must be kept for 15 months after the date you send it in.

If you are Self-employed or in a partnership, you need to keep records for 5 years from 31 January following the tax year that the return relates to. For 2023/24 all records need to be kept until at least 31 January 2030.

If you have a Limited Company, you need to keep records for 6 years from the end of the accounting period. If your accounting period ended on 31 December 2023, the records must be kept until 31 December 2029. If your accounting period ended on 31 March 2024, the records must be kept until 31 March 2030.

If you send your tax return in late, or it is subject to a compliance check, then the time limit for record keeping may be extended.

In addition to the general rules, there are time limits during which HMRC can raise an assessment and this is generally 4 years. Therefore, HMRC can raise an assessment within 4 years of the end of any taxable period (end of tax year, accounting year, VAT quarter). This extends to 6 years if there has been a careless error, and as far back as 20 years if they commence an investigation and believe there has been a deliberate error. This is why it is generally considered that you should keep documents for 6 years from the end of the taxable period, and that is what we recommend. So, for the tax year 2023/24 you should keep records up to 5 April 2030, and for an accounting period ending 30 June 2024 you should keep them until 30 June 2030. See HMRC’s time limits for assessments.

Penalties for poor record keeping

If HMRC need to check your tax return for any reason and you are unable to supply records you used to complete the return, you may incur a penalty of up to £3,000. This could also be seen as a failure to meet your director responsibilities, for which you may be disqualified. Claiming that the data has been ‘lost in the cloud’ is unlikely to be an acceptable excuse.

Making Tax Digital (MTD)

The gradual introduction of Making Tax Digital demonstrates that HMRC are actively encouraging the use of digital record keeping.

MTD means that:

• Anyone who is required to comply must maintain their records in digital format and must make regular report submissions to HMRC via software.
• The minimum information that needs to be digitally recorded is the date, amount and category of each transaction. Invoices and receipts can be maintained in either digital format or paper format, provided the minimum information is held in the software.
• Using software to maintain your records is the easiest way to ensure you will be able to meet the future reporting requirements. The software chosen must be ‘functional compatible software’ that is acceptable to HMRC. Click here to see the latest list of software providers.
• Some software providers have a mobile phone app which helps you capture pictures of receipts and invoices, making the digital process very easy, for example the FreeAgent mobile app.
• Using spreadsheets to record transactions will still be acceptable provided you have software that provides a digital link to them.

Digital exclusion from MTD

Digital record keeping may not be for everyone. There are a few circumstances where HMRC will consider giving an exemption. This could be because of:

• Age, disability, geographical location
• Religious grounds
• Or where it is not practical or reasonable

In any of the above cases, an application would need to be made and approved by HMRC.

I hope this guide about record keeping has been helpful. For more information, please contact us at Competex.