How long should you keep your tax and accounting records for?

If you’re contracting through a limited company, using an umbrella, or trading as a freelancer, you must maintain accurate financial records. The rules on how long you must keep them vary according to the tax.

How long do you have to keep your financial records?

The length of time depends on your trading structure and the type of tax involved. Here’s a quick overview:

Limited company owners

If you are a limited company owner, you should keep all your business-related tax records for a minimum of 6 years from the end of your current accounting period. Umbrella company contractors only have to keep personal tax records, as they are employees, not business owners.

Employers

If you are also an employer, you need to keep all PAYE records for 3 years (in addition to the current year). If you operate through your own company and pay yourself (and/or others) a salary, then you are an ’employer’. You need to maintain records of all deductions made from employees’ pay, benefits, expenses and any statutory payments.

Company directors

If you are a company director, you must file an annual self assessment tax return and pay any outstanding personal tax on your income (dividends and any other untaxed income).

Personal income tax

For personal income tax, you must keep all relevant records of income and any capital gains you may have realised for 22 months from the end of the tax year to which they relate.

Umbrella company contractors

Umbrella company contractors may also need to complete self assessment tax returns if they earn additional income upon which has not already been deducted by the umbrella scheme. See our guide on umbrella employees and Self Assessment.

Sole traders and freelancers

If you’re a self-employed freelancer (a ‘sole trader’), all of your income is taxed via self assessment, and you must keep all of your records safe for at least 5 years after the 31st January submission deadline of the relevant tax year.

Given that there are different statutory deadlines for PAYE, income tax, and business taxes, it is advisable to retain all your tax records for at least six years. Then you can’t go wrong!

Why you should keep hold of your tax records

Aside from complying with your legal obligations to do so, there are plenty of reasons why you shouldn’t be too hasty in tidying up your paperwork drawer.

• If HMRC decides to look into your business or personal tax affairs, you will need to produce your accounting records for the inspector (HMRC compliance checks).
• In the future, you may need to double-check your past work or search for a transaction for your own purposes, especially if you don’t have online copies.
• Online accounting software has become very much the norm these days, and has been adopted by almost all leading contractor accountants. This means that almost all of your tax records should be safely stored on the Cloud.
• Clearly you can’t store everything online automatically. However, most limited company accountancy software will enable you to scan and upload receipts and invoices. It is worth keeping the originals in a safe place.

Which paperwork do I need to keep in a safe place?

If you run your own limited company, you are required to keep the following records for a minimum of 6 years from the end of the current accounting period:

• Accounting records – including details of all your company’s assets, liabilities, income and expenditure.
• Business records – including bank statements (which are mainly online these days), paying-in books, and details of all purchases, and expenses.
• VAT records – includes copies of all invoices sent out, and received by your company, plus VAT receipts on any expenses you have reclaimed from your company.

As an employer, you also need to retain your PAYE records for at least three years, including details of all salaries paid to employees and any deductions made (such as Income Tax, NICs, and pension contributions).