What are the legal requirements for business records?

According to the Companies Act 2006, “Every company must keep adequate accounting records”, but what does this actually mean? While the actual legislation can be confusing, it essentially means that every single business should keep track of every single transaction they make.

If your company completes a large number of transactions, it can feel overwhelming trying to make an accurate list of everything you buy and sell. Hopefully, this article should simplify things for you.

In this article about legal requirements for business records, you will learn:

• Which records to keep
• Failing to provide your records
• Keeping your records safe
• How long to keep your records for
• How to easily track your records with a simple app

Firstly, it’s important to keep any personal records separate from your business records. These are different things, and HMRC can ask to see one but not the other. Keeping them separate ensures that they don’t get accidentally mixed up. 

Your business records don’t just include the history of your profits and losses; they include any sales and purchases you may have made as the business. These include assets, personal cash deposits and withdrawals, and mileage (if you are claiming it).

A full list of what you must include in your business records is below:

• All sales and business income (such as invoices, bank statements, pay slips)
• All purchases and business outgoings
• The purchase or sale of any equity or capital business assets (machinery, vehicles, etc.)
• Any personal funds, taken from or paid into the business account
• Details of any business journeys, if claiming (destination, mileage, purpose, and date)

Those are the minimum details that need to be in any records if the HMRC requests them – but that’s not all you might have to take note of. Depending on how you run your business, it may be necessary to keep a record of:

• The costs of a home office
• The details of any leasing agreements, such as a vehicle or office space
• Any inventory or stock your business currently owns

These records should be easily accessible and kept up to date. It’s a good idea to update them regularly as part of your routine. If managed properly, it should be easy to deliver any records when requested.

If your transactions are on paper receipts, you can use the Countingup app’s receipt capture feature to quickly transfer them into an organised, digital format. Kept digitally, it’s more secure than keeping many small paper receipts. 

HMRC will contact you when they want to check your records. This notification can be via letter or phone call. A representative may then visit you at your home or office, or request you visit them.

If you are unable to provide your records when requested, you may be subject to a fine. The severity of this fine depends on your behaviour and HMRC’s potential lost revenue (PLR).

• 10%-30% of PLR for non-deliberate behaviour
• 20%-70% of PLR for deliberate not concealed behaviour
• 30%-100% of PLR for deliberate and concealed behaviour 

To avoid any penalties, it’s crucial that your records are kept safe and up to date. If you do make a misstatement in accounting, it’s vital that you let HMRC know as soon as possible.

HMRC can ask you to provide a copy of your records at any time. With this in mind, it’s crucial you keep them organised and safe. By making sure your records are all in order ahead of time, you can prevent any stress or potential errors from arising when trying to gather them. 

It may prove vital to remember that the following methods work best when used together. Accidents do happen, so it’s better to have additional backups and not need them, than need them and not have them. 

Using apps like Countingup can ease the process of keeping your records secure. The app organises your spending with the automatic categorisation feature, so payments are clear and accessible when you need them. Best of all, you’ll be able to access a copy of your records from your app, as long as you have internet access.

It’s also becoming more practical to store your records online. In an effort to make tax easier to manage, the government has started the Making Tax Digital scheme (MTD). The plan is to update and move the tax system online, making it more effective and efficient. 

One of the ways it achieves this is by being compatible with certain accounting software, like the Countingup app. Instead of needing to submit complicated Self-Assessments, you’ll be able to submit your taxes accurately from inside your digital accounting app. 

If you use a computer to keep your records up to date, you may find it beneficial to keep a copy of your records on there for easy access. 

Having your records on a computer does make them more vulnerable, especially if multiple people use your computer. You can improve the security of your files by having a password-protected user account. Computers are also vulnerable to accidental damage, which can permanently destroy your records.

Another option is to keep a copy on a memory stick or external hard drive. This way, your business records can still be easily accessed and updated, without the vulnerabilities of being stored on your computer. 

With all your records together, you may be wondering how long you need to keep them? Just like keeping your invoices, you need to keep business records for at least six years. 

Even when you’ve passed the minimum requirements to save your records, it can still be a good idea to keep hold of them. Doing so may help you deal with any disputes that arise. 

Finding your income and outgoing records can be both time-consuming and stressful. That’s why thousands of business owners use the Countingup app to make their financial admin easier. 

The Countingup app’s receipt capture tool and automatic categorisation feature is incredibly useful for quickly sorting and creating accurate business records. Every time you make a payment, you’ll be nudged to record it in the app, helping you to keep organised when it comes to your business records. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With additional features like invoicing on the go, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Find out more here and start your three-month free trial today.