Keeping on top of your finances is a vital aspect of owning a small business.
But all of the paperwork, from bank statements and invoices to receipts and correspondence, can easily pile up over time.
So how long should you hang on to your business books and records?
Well, HMRC requires small businesses to keep their records for at least six years from the end of the last tax year they relate to.
This rule applies to both limited companies and sole traders, so you’ll ideally be able to provide documentation if any questions regarding your tax return need to be asked.
Should I keep records for longer?
There might be some situations where it’s worth keeping hold of your records for even longer than the legal minimum.
For example, business records dating back further than six years can provide valuable insights and information that could guide your future plans.
If you have the ability to analyse your past performance, you’ll be more likely to make informed, evidence-based decisions on issues such as budgeting, marketing strategies and the overall direction of your business.
It might also be worth keeping hold of paperwork if your business owns assets that are expected to last for longer than six years, such as property, equipment and machinery.
By retaining documents that relate to the whole lifespan of these assets, such as maintenance logs and details of any upgrades, you can make sure your depreciation calculations are accurate.
Furthermore, having documented proof of a long-lasting asset’s cost, depreciation history and maintenance could make a big difference if and when you decide to sell it. For instance, it could help you negotiate a higher selling price with a prospective buyer, and potentially claim any available tax relief on the disposal.
Keeping detailed records can also be invaluable if you ever end up in a legal dispute, such as a contractual disagreement, as you’ll have the facts and figures at your disposal.
Similarly, if it’s worth having records readily available if you’re seeking investment or undergoing an external audit.
How should I store my records?
Perhaps the key issue to consider is not necessarily how long you should keep records for, as long as you adhere to the legal minimum.
Instead, you should be focusing on how to make sure valuable management information is at your fingertips whenever you need it.
The traditional approach of storing paperwork in a physical filing cabinet can be unwieldy, take up office space and, ultimately, less efficient than digital alternatives.
For example, there are many cloud-based storage solutions available, as well as accounting software programmes, where all your invoices, receipts and other documents can be linked with your financial data.
However, it’s important to look at any data protection and security requirements that might apply to you, so you can be sure you’re handling sensitive information in a safe, secure and legally compliant way.
If you have any questions on how best to manage your business finances and what rules and regulations will affect your company, please don’t hesitate to get in touch and we’ll be happy to speak with you.