Record Retention: What Business Documents to Keep and How Long

Why Record Retention Rules Exist

Tax authorities have the right to audit business tax returns going back several years. To conduct an audit, they need to see the records that support the figures in your return - invoices, receipts, bank statements, payroll records, VAT returns. If you've thrown these away, you have no defence against a tax authority's alternative assessment of what you owe. Record retention requirements are, at their core, about giving you the ability to defend your own tax position.

The required retention periods also reflect how long the tax authority can realistically go back to investigate. Most jurisdictions have time limits on how far back an audit can reach - typically five to seven years for standard returns, longer for cases involving suspected fraud or serious non-compliance.

UK Retention Requirements

In the UK, the retention requirements vary by business type:

• Sole traders and partnerships: Keep records for at least five years after the 31 January self-assessment filing deadline for the relevant tax year. In practice, this means keeping records for approximately six years from the end of the relevant tax year.
• Limited companies: HMRC requires companies to keep accounting records for at least six years from the end of the accounting period they relate to. Companies House has separate requirements for statutory documents.
• VAT records: Keep for at least six years (or 10 years if you use the VAT MOSS scheme for digital services to EU consumers).
• PAYE records: Keep for at least three years after the tax year to which they relate.

What Records Must Be Kept

The records you need to retain include:

• Income records: All invoices issued, receipts of payment, bank statements showing income receipts, contracts and agreements with clients
• Expense records: All purchase invoices and receipts, bank statements showing expenses, credit card statements, mileage logs, expense claim records
• VAT records: VAT returns, VAT account, records of VAT charged on sales and reclaimed on purchases
• Payroll records: Payslips, P60s, P45s, PAYE payment records, RTI submissions
• Asset records: Purchase invoices for capital assets, depreciation schedules, disposal records - keep for the life of the asset plus the retention period
• Bank statements: All business bank statements for the retention period
• Contracts and agreements: Keep for the duration of the contract plus the retention period

Related reading: best practices for storing and organising receipts.

Digital Records Are Accepted

HMRC explicitly accepts digital records as an alternative to paper originals in most circumstances. You don't need to keep physical copies of receipts - a good quality digital photograph or scan is sufficient, provided it is legible, complete, and stored securely. This means you can build a digital archive of all your business records and discard paper originals, which massively simplifies storage and retrieval. The key requirements for digital records are: legibility, completeness (all four corners of the document visible), and secure storage with backup.

What Happens if You Don't Keep Records

HMRC can charge penalties for failing to keep adequate records. The penalty for inadequate record-keeping is up to £3,000 per tax year. More significantly, if HMRC conducts an enquiry and you can't provide records to support your tax return figures, HMRC can make its own assessment of what you owe - which will almost certainly be higher than your actual liability, and which you will have difficulty disputing without records. The cost of proper record retention is trivially low compared to this risk.

Building a Document Retention System

The simplest approach is to use a cloud accounting system that stores all your records digitally and automatically applies appropriate retention. A folder-based backup system works equally well: organise records by tax year and document type, store in cloud storage with automatic backup, and set a calendar reminder to purge records that have exceeded their retention period (though keeping them longer than required is always safer than disposing of them prematurely).

How Note.now Makes This Easy

Note.now stores all your invoices, receipts, bank statements, and expense records securely in the cloud, indexed by date and category. Your records are always accessible and backed up. See also: how to prepare for tax season. Explore Note.now's accounting features, or start free today.