Tax Records: A guide to keeping tax records

Business tax guide: Find out what it takes to master your business tax

Getting your head around business tax can be tough. Getting your taxes wrong could prove to be costly which is why taking the time to ensure you file your taxes right is key when running a successful business. Our business tax guide helps to make things easier for you, busting the jargon and giving useful tips for business owners who are struggling to navigate the murky waters of business tax.

In this guide, we are going to cover tax records. What tax records do small businesses need to keep and how long should businesses keep tax records for? You might be asking why you even need to keep tax records in the first place. If these questions sound like ones you want answers to, read on to find out more from the Premierline business tax guide.

Why are tax records important?

When submitting tax returns to HM Revenue & Customs (HMRC), it’s important to ensure you keep accurate records of your income and expenditure to accurately calculate your tax liabilities. Occasionally, HMRC may be required to inspect your businesses records and therefore having an accurate record keeping process in place means if this does happen, HMRC will be able to access everything they need to ensure you have filed your businesses taxes correctly.

Claire Sambrook, Interim Finance Director at Premierline highlights why accurate tax records are important:

“Having up to date and accurate financial records is a critical part of running any successful business. These will allow timely and accurate submissions to HMRC avoiding a lot of unnecessary panic when tax deadlines approach, but also will allow business owners to understand the performance of the business and be able to react accordingly.“
Claire Sambrook, Interim Finance Director at Premierline

Remember, you don’t have to go it alone. Working with a qualified accountant is a great way to ensure you know how much business tax is due, that your business tax records are organised and up to date. Your accountant should be able to advise you on exactly what you need to do to ensure you are recording your taxes accurately throughout the tax year.

What happens if you don’t keep tax records?

Ultimately, you’ll need to refer to your business records when submitting a tax return, so at best by not keeping records you could be making this process much more difficult. In more serious circumstances though, HMRC may need to check your business tax return which means they will need to see the records related to the tax year in question. If you can’t give these records to HMRC, you may be liable to pay fines or penalties of up to £3,000 per tax year and further legal action could be taken against you. That’s why keeping accurate tax records is essential for small businesses.

How long do you have to keep tax records for HMRC?

The length of time that businesses are required to keep tax records for varies depending on the type of business and the type of records they keep. For self-employed people or individuals that are registered as part of a partnership, you must keep your tax records for at least five years from the 31st of January following the tax year that the tax return is related to.

For example, if you file your tax return for 2021 – 2022 by the 31st of January 2023, you should keep your tax records until at least the 31st of January 2028. You may be required to keep them for longer if your records are under investigation or if you filed your tax return late.

For businesses registered as limited companies, or businesses which pay corporation tax, tax records must be kept for six years from the accounting period end. So, if your accounting period ends on 31st of December 2022, records should be kept until the 31st of December 2028.

Thankfully, you are able to keep your tax records in a digital format which could include saving them on computers, USB drives or even secure cloud storage. As long as records are complete and in a readable format, you are not required to keep physical copies of relevant documents, therefore many businesses will store records for much longer than the minimum requirement due to the efficiencies of going digital with your taxes. As always, if you are ever in doubt, we’d always recommend you speak to your accountant or bookkeeper for more advice on how to save your tax records appropriately.

What tax records do you need to keep for HMRC?

When it comes to keeping tax records for HMRC, there is no definitive list of exactly what documents you need to keep hold of. Furthermore, the requirements differ depending on the nature of your business. A good starting point is to consider the documents that HMRC send out to you. If you’re an employee, this will include things like your P45, your P60, P11D forms and any documents related to pensions. You should keep copies of these documents as part of your tax records.

Employees (such as company directors) also need to keep records for any benefits they have received, as well as records of income from employee share schemes or other share related benefits. They should also keep general financial records such as bank statements, statements of interest, records of dividends and any other ‘out-of-the-ordinary’ income such as inheritance.

Businesses should always keep records of all business expenses. These are important as some expenses may be tax deductible and therefore may reduce the amount of tax you owe. Records for expenses include things like receipts and invoices as well as other bills and contracts. Remember that if you work from home you may also be able to include the costs associated with this in your tax return, so accurate records of work from home expenses should also be kept.

If you are claiming a mileage allowance for business travel, then records of all journeys need to be kept which include dates, the distance travelled, addresses visited and the purpose of the business trip.

It is crucial that you keep records of your business income alongside your expense records, this could include income from rent, retail sales or money generated from elsewhere within your business, this also includes income generated overseas. This allows HMRC to see how much money your business has made which is vital in ensuring your tax calculations are accurate.

Our business tax guide

Our essential business tax guide has been designed to help business owners get to know more about their taxes. It’s not easy running a business and that’s why we work with our customers to keep things simple. For more business guidance, check out the latest posts on the Premierline Insight Hub.

With your business tax questions answered, now could be the perfect time to think about your business insurance. Got questions about your insurance covers? Get in touch with our experts today to review your business insurance needs and make sure your livelihood is protected.