Here are some essential tips for the self employed, and limited company owners, on how to keep your accounting records safe, and how long you are required to keep them for.
Emily Coltman ACA, Chief Accountant to FreeAgent – who provides an award-winning online accounting system for freelancers and small businesses – gives her top tips on how to prevent your accounts from going up in smoke or being lost in other ways.
How to protect your accounting records
Firstly, you might choose to keep soft, rather than hard, copies of your paperwork and make sure you back them up. You can do this online using a secure storage service. This will not only save you storage space, but will also mean that your records are kept intact if there is a fire, flood, burglary or any other disaster at your business premises.
HMRC are quite happy to accept soft copies instead of hard copies as evidence, for example, they accept that a scanned train ticket constitutes the same proof of your having made the journey as the original paper ticket.
If you are scanning a document, and it has anything printed on the back such as terms and conditions, make sure that you scan both sides of the paperwork so that HMRC will accept it as proof.
Invest in a small, easy-to-use scanner such as Doxie, which can be used wirelessly anywhere and also produces small files so that your file storage bill will be kept to a minimum.
The only case where HMRC will not accept soft copies is if the original paperwork had a tax deduction written on it. These include:
- Dividend vouchers
- Bank interest certificates
- Construction Industry Scheme (CIS) vouchers which were used before the current scheme was introduced in April 2007
HMRC also lay down requirements for how long you should keep your business records, whether these are hard or soft copies.
Sole Traders & Partnerships
If you’re a sole trader, or in partnership, you must keep your business records safely for at least five years after 31st January following the end of the tax year. So for example, you must keep your records for your accounts for the year ended 5th April 2012 until at least 31st January 2018.
But if HMRC sent you – or you sent back – your tax return very late, you may need to keep your records for longer. You must keep them for at least fifteen months after the date you sent your tax return in, even if that’s more than five years following the normal filing deadline of 31st January.
You may also need to keep your records for longer if HMRC start a check into your tax return, when you’ll need to keep your records until HMRC writes and tells you they’ve finished the check.
If your business is a limited company, you must keep your records safely for at least six years after the end of your corporation tax accounting period, which will usually be the same as your company’s year end date.
The exception to that is any assets that your company has bought – large pieces of equipment such as furniture and computers. You must keep the paperwork for the purchase of these assets for six years after the date you sell, scrap or give away the asset.
Save space and keep your records safe by scanning them, and make sure you save your backups for long enough in case HMRC start a check or make an inspection.
You may want to consider using a service such as Receipt Bank, which integrates with FreeAgent accounts, to scan your receipts and pull them seamlessly into your accounts, and try an online backup service like Depositit to keep copies of your scanned receipts in a second safe place.
Emily Coltman ACA is Chief Accountant to FreeAgent, who provides an award-winning online accounting system designed to meet the needs of small businesses and freelancers. Try it for free here.