Every business owner knows the groan-worthy task of sorting through receipts and logging expenses.
While many view record-keeping as just another task on their endless to-do list, treating it as a core business practice rather than an afterthought can transform how you run your operations and make decisions.
Also, maintaining proper financial records isn’t optional. It’s a legal requirement for all businesses, and HMRC has specific rules about what you need to track and how long you need to keep records.
Read on to learn everything you need to know about accurate recording keeping, what records HMRC requires you to keep, and for how long.
What Records Do You Need to Keep?
Good record-keeping is the secret weapon of thriving businesses – it shows you exactly where you stand and helps you make smarter choices.
Let’s break down what you should hold onto and manage:
Daily Income Records
Track every penny that comes into your business. Save copies of the invoices you send out, log which ones have been paid, and keep all sales receipts.
This includes cash payments, bank transfers, card transactions, and any online sales platforms you use. Don’t forget to record deposits, refunds, and credit notes.
Business Expenses
From utility bills to office supplies, log all your costs by date, amount, and type. Keep receipts for everything – fuel for business travel, software subscriptions, raw materials, tools, and equipment.
Digital or paper receipts are both fine, but they must show the full details of what you bought and when. Include records of business entertainment, vehicle expenses, and home office costs if you claim them.
Banking and Cash Flow
Store your bank statements, clearly note cash deposits and withdrawals, and keep records of transfers between accounts.
If you handle petty cash, set up a simple system to track what it’s spent on. Keep records of any business loans, credit cards, and overdraft facilities. Document any personal money you put into or take out of the business.
Staff and Payroll
For employees, maintain detailed records of salaries, tax deductions, National Insurance contributions, and any benefits or expenses you reimburse.
Keep copies of P45s, P60s, and any correspondence about tax codes or employee status changes. Include records of holiday pay, sick leave, and pension contributions.
Assets and Stock
Track your business assets – equipment, vehicles, property, and machinery. Record their purchase dates, costs, and any improvements or repairs.
If you sell products, keep detailed stock records showing purchases, sales, stock levels, and wastage. Document any asset disposals or write-offs.
VAT Records (If Registered)
Keep all VAT invoices and receipts – both those you issue and those you receive. Your records need to show:
- The total amount of VAT you’ve charged to customers
- The total amount of VAT you’re claiming back on purchases
- A separate record of zero-rated and exempt sales
- Your VAT calculations for each return period
- Copies of all submitted VAT returns
Your records should make it clear how you arrived at each figure on your VAT returns, and everything should match your business income and expense records.
Read our guide to registering for VAT here.
Other Essential Documents
- Contracts and agreements with suppliers or customers
- Insurance policies and claims
- Licenses, permits, and certifications
- Minutes of business meetings
- Previous years’ accounts and tax returns
- Property-related documents like leases or purchase agreements
- Records of grants or government support received
- Professional memberships and subscriptions
- Vehicle logbooks and mileage records if claiming expenses
Legal Requirements and Retention Periods
Keeping certain business and financial records is a legal requirement.
If you don’t keep the right records for the required length of time, you could face penalties from HMRC.
In some cases, they might even estimate your tax bill for you, which could end up being higher than if you’d kept proper records.
So, let’s break down the key retention periods you need to know:
Self-Employed and Sole Traders
If you’re self-employed or operating as a sole trader, you need to keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year.
So, for the 2020/21 tax year, you’d need to keep your records until at least 31 January 2027.
Limited Companies
For limited companies, the rule is a bit different.
You must keep your records for 6 years from the end of the financial year they relate to. So, if your financial year ended on 31 March 2021, you’d need to keep those records until at least 31 March 2027.
VAT Records
If your business is VAT registered, you need to keep your VAT records for at least 6 years.
This includes your VAT accounts, invoices, and credit or debit notes.
Payroll Records
If you have employees, you need to keep your payroll records for 3 years from the end of the tax year they relate to.
This includes things like payroll reports, PAYE records, and any relevant correspondence with HMRC.
It’s worth noting that these are minimum retention periods – there’s no harm in keeping records for longer if you have the space and inclination.
Some businesses choose to keep records for longer for their own reference or in case of any future disputes.
The key is to have a system for securely organising and storing your records. Whether you opt for physical filing, digital storage, or a combination of the two, make sure you can easily locate and retrieve records if needed.
Best Practices for Record Keeping
Developing superb record-keeping habits is crucial for the success of your business, but it takes time and effort to get it right.
One of the most important habits to develop is setting aside dedicated time each week to update your records.
Block out time in your calendar and treat it like any other important appointment.
Consistency is key. Spending just 30 minutes a week on your records is far better than trying to tackle it all at once at the end of the month or quarter.
Here are a few more concrete tips to help you streamline your record-keeping process:
- Create a filing system that makes sense for your business. This could be a series of folders on your computer, a physical filing cabinet, or a combination of both. The key is to have a clear, logical structure that allows you to quickly find what you need.
- Use separate bank accounts and credit cards for your business and personal expenses. This makes it much easier to track your business transactions and prevents any confusion at tax time.
- Get in the habit of recording transactions immediately. Whether it’s a client invoice, a receipt for office supplies, or a mileage log for a business trip, record it right away rather than letting it pile up.
- Set aside time at the end of each month to reconcile your records with your bank statements. This helps you catch any errors or discrepancies early on, before they become major issues.
Use Accounting Software
One of the most effective ways to streamline your record-keeping is to use accounting software like Xero, QuickBooks, or FreeAgent.
These tools are specifically designed to simplify the bookkeeping process for small businesses and freelancers.
Here are some of the key features that make accounting software so powerful:
- Automatic transaction imports: Most accounting software can connect directly to your bank accounts and credit cards, automatically importing your transactions each day. This saves you the time and hassle of manual data entry.
- Receipt scanning: With apps like Receipt Bank or AutoEntry, you can simply snap a photo of your receipt using your smartphone, and the software will extract all the relevant details and match it to the corresponding transaction in your accounting system.
- Invoicing and expense tracking: Create and send professional invoices directly from your accounting software, and easily track your business expenses. Many systems also offer features like automatic invoice reminders and the ability to accept online payments.
- Detailed reporting: Generate profit and loss statements, balance sheets, cash flow reports, and more with just a few clicks. This gives you valuable insights into your business’s financial health and helps you make informed decisions.
By leveraging these features, you can dramatically reduce the time you spend on bookkeeping while also improving the accuracy and completeness of your records.
Common Pitfalls to Avoid
Even with the best intentions, it’s easy to fall into common record-keeping traps. Here are a few pitfalls to watch out for:
Mixing Business and Personal Finances
One of the most common mistakes is blurring the lines between your business and personal finances.
Even if you have separate bank accounts, it’s crucial to maintain clear records of any money moving between the two.
Never use your business accounts or credit cards for personal expenses, as this can create serious friction come tax time.
Procrastination and Disorganisation
Another pitfall is simply putting off your bookkeeping or disorganising your records.
It’s easy to toss receipts in a drawer or let invoices pile up, but this leads to missing information and a lot of stress when it’s time to file your taxes.
Set up a clear system for recording and filing your financial documents as soon as you receive them.
Neglecting Backups
Don’t rely solely on paper records or a single computer – if something happens, you could lose months or even years of data.
Use cloud storage services like Dropbox or Google Drive, and consider keeping a physical backup in a secure location like a safe or safety deposit box.
Overlooking Small Details
Finally, don’t let the little things slip through the cracks.
Mileage logs, petty cash receipts, and client entertainment expenses might seem minor, but they can add up over time. Make sure you’re tracking all your business expenses, no matter how small.
Managing Your Records With Double Point
The key to good record-keeping is establishing a routine and sticking to it.
Set up a system where you can quickly file and find documents. Consider using accounting software that can automatically import bank transactions and store digital copies of receipts.
Regular reviews of your records can help identify potential issues before they become problems. This might include checking for missing receipts, reviewing unpaid invoices, or reconciling accounts.
Remember, good record-keeping isn’t just about compliance – it’s about having the information you need to make better business decisions. When you know exactly where your business stands financially, you can plan more effectively for the future.
At Double Point, we understand that maintaining accurate financial records can be challenging alongside running your business.
Our team can help you set up efficient record-keeping systems, ensure compliance with HMRC requirements, and use your financial data to make informed business decisions.
Get in touch to learn how we can help you turn record-keeping from a chore into a valuable business tool.
