Running a business presents the business owner with a whole raft of responsibilities, such as to staff, if they employ people, and to the taxman. Knowing what information you need to keep in business archives, as well as understanding how long you should keep this information for.
The most important aspect of running a business is maintaining accurate and detailed financial records. This means recording every source of income and expenditure in a system that is robust, detailed and secure.
This is for tax purposes, in the main, but also shows prospective buyers of your business and investors of the stability of your business as a ‘going concern’.
What financial records should you keep?
A business will need to keep records of:
- All sales and income
- All business expenses
- VAT records if you are a VAT registered company or business
- PAYE records if your employ staff
- Records about your personal income
Even though you keep this information, you don’t need to send all this to the taxman. You keep it so that you can work out your tax return but, you must also have them to hand if HM Revenue and Customs ask to see them.
This means keeping things such as receipts for goods and stock purchased, bank statements, chequebook stubs, sales invoices, till rolls and bank slips.
You will also need to keep a record of what you are owed but haven’t received yet, what spending commitments you have, the value of stock, year-end bank balances, how much you have invested in the business and how much money you have taken out for your own use. If you’re lacking storage space for all this, then you may want to consider archiving documents in a secure location, but still ensuring you can access them if needed.
How long should you keep financial records?
You must keep your financial records for at least 5 years after the submission deadline of 31 January. For example, when you submit your tax return for 31 January 2016, you will need to keep everything until 31 January 2021 as a minimum.
If you employ staff, there will also be records and information that you will need to keep. There are some guidelines to help employers:
- Personal data such as CVs – you can hold on to these for 6 months as an unsuccessful interviewee can raise a discrimination claim against you within 3 months of being interviewed (this can be extended up to 6 months). If you want to keep their CV on file, you will need to notify the applicant and tell them how long you intend to do this and if they have any objections.
- Employee records – you should hold on to employee records for 6 years after they have lost. This information may be needed for a tribunal, or legal proceedings, which can happen some years down the line.
- PAYE, maternity pay and SMP – these financial records should be retained for 3 years as this is the length of time that HMRC would conduct reviews.
In many cases there are no steadfast rules on what you should keep, other than those stipulated for financial records by HMRC. In the spirit of Data Protection Act 1998, don’t hang on to information or data longer than necessary.