There was quiet a lively Facebook chat about business records the other day. How long should you keep receipts for? Do they need to be original paper copies and can you keep scanned records?
Paper Records Versus Electronic Records
So, let’s clear up whether you need to keep paper records or whether you can scan and destroy records. HMRC have accepted scanned (Optical Imaging Systems) for Sole Traders and Partnerships since 1996! Then in October 1998 it was confirmed that this arrangement was extended to Limited Companies. Our friends at Receipt Bank have confirmed that HMRC are happy with this arrangement in a blog back in 2011 and even cited the HMRC Tax Bulletin confirming it.
What HMRC say about scanned records
“Records may be preserved on optical imaging systems, and the originals discarded, provided that what is retained in digital form represents a complete and unaltered image of the underlying paper document.” SOURCE Tax Bulletin Issue 37
It is our advice that business owners should store records, like receipts, digitally in the cloud.
How long do I keep business records for?
Predictably, there isn’t a black and white answer for this! We have 4 possible answers!!!
If you are Self Employed, HMRC advise you to keep your business records for at least 5 years after the 31 January submission deadline of the relevant tax year. Which is 5 years and 10 months in plain English.
But, if you submit your Self Assessment more than 4 years late…. You must keep the business records for 15 months AFTER you submit the return to HMRC.
If you run a Limited Company then you must keep records for 6 years from the end of the last company financial year they relate to. But there are a few exceptions, you must keep records for longer is:
- They show a transaction that covers more than one of the company’s accounting periods
- The company has bought something that it expects to last more than 6 years, like equipment or machinery
- You sent your Company Tax Return late
- HMRC has started a compliance check into your Company Tax Return
And just to complicate matters a little further……
There is a section of the gov.uk website (Part of where HMRC website sits) that offers the advice “You must keep business documents for 7 years after the company is struck off, e.g. bank statements, invoices and receipts.”
So, we would advise business owners to keep their records for 7 years because of the “strike off” advisory notes on the Gov.Uk website.
Why should you store receipts digitally?
There are a few reasons why you should choose to store your records digitally in the cloud.
Okay, so the risk of an office fire is small you might think. But it happens, all it takes is someone to leave their electric radiator on overnight or some other “freak accident” and then your receipts are gone, which could prove to be a very costly mistake.
Similar to the risk of fire, you probably don’t think this will happen to you. We had a client whose office was underneath a flat. Overnight there was a leak from the flat which destroyed paper records and also a number of electrical items. Fortunately, the paper records were also stored electronically including receipts/invoices for the electrical equipment which were required for the insurance claim.
Realistically, Bob the Burglar isn’t going to break into your office and steal your receipts. But, they might steal a laptop or computer. If you have stored copies on the PC and it’s stolen, your records are gone.
It’s easy to lose a receipt, but things like Receipt Bank offer an App that means you can take a photo of the receipt immediately. Thus, removing the risk of losing a receipt again.
A lot of receipts degrade over time, even more so if you can greasy fingers on that laser printed receipts. Taking a scanned copy helps maintain a high-quality image of the receipt for future reference, you’d be surprised how much a till receipt can deteriorate in quality in 1 year, let alone 7 years.
There’s a cost saving to storing receipts electronically. We’ve seen business owners receive receipts/invoices via email and then print out the invoice to store in a ring binder. That’s an unnecessary printing cost.
Also, there’s potentially the cost of storage. Archiving physical documents isn’t cheap and even if you choose to store the records in the office, you’ve still got an opportunity cost (i.e. that space could be used for something else)
Oh, and by the way…. Keeping accurate and safe financial records is crucial! Did you know you could be fined upto £3,000 and removed as a Director if you fail to keep accurate and safe business records.