Proper record keeping is essential for businesses to comply with legal and tax obligations. For limited companies, partnerships, and VAT-registered businesses, maintaining accurate records helps prevent penalties, aids in tax calculations, and supports compliance with the Companies Act and HMRC requirements. Here’s a breakdown of key record-keeping requirements for various business entities in the UK.
Limited Companies
UK law requires limited companies to keep detailed records of all transactions, including daily transaction entries, details of income and expenses, and records of assets and liabilities. Companies selling goods must also maintain stock records and details of all sales and purchases, including information about buyers and sellers.
Records must be retained for at least three years for private companies and six years for public companies. Failure to maintain adequate records is a criminal offense, potentially leading to fines or imprisonment. Directors are responsible for ensuring compliance with the Companies Act.
HMRC Requirements for Businesses
In addition to Companies Act obligations, businesses must meet HMRC’s record-keeping standards. This includes retaining bank statements, invoices, contracts, and estimates used in annual accounts and corporation tax returns. These records must be kept for a minimum of six years. If tax returns are filed late or HMRC conducts an inquiry, records must be retained until the inquiry concludes.
Individuals and Partnerships
Partners share the responsibility for keeping accurate records and filing partnership tax returns. They must retain records supporting their tax returns, such as dividend vouchers and interest statements, for at least five years after the January 31 submission deadline of the relevant tax year.
VAT-Registered Businesses
VAT-registered businesses must keep records of all sales, purchases, and VAT-related documents such as invoices, credit notes, and import/export documents. A VAT account must record VAT charges, reclaimable amounts, and any adjustments. VAT records generally need to be kept for six years, but records for bad debt relief only need to be retained for four years.
Employers
Employers must keep payroll records, including wage payments, tax deductions, benefits, and employee leave. These records should be retained for three years after the tax year ends.
Record Format and Digital Compliance
Records can be kept in physical, electronic, or software formats but must be accessible in a readable form. Under Making Tax Digital, VAT-registered businesses must maintain digital records, with other taxes potentially following in the future.
If you have any questions regarding record keeping, please contact FKGB for further advice.
