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Throughout doing business, you have likely accumulated many documents and records. If you decide to close your business, you will have to decide which documents you want to keep and which to throw away. Record keeping is an important part of closing the business, and you may have legal obligations to keep certain documents.
This article will outline some of the key points you should know about document retention if you are closing your business, and it will touch on some of your legal obligations to keep certain documents.
General Overview
Her Majesty’s Revenue and Customs (HMRC) requires you to keep accurate records when operating your business, regardless of whether you are a sole trader or a limited company. These records include sales, purchases, expenses, cash books, mileage records, and bank statements.
However, keeping your documents can be space-consuming. Paper records, in particular, can be an issue for businesses that are limited in space. Keeping those documents after your business has closed down can be a hassle. As an alternative to paper records, you can store your records digitally. The only requirement in this regard is that the records have to be clearly legible.
Therefore, we recommend that you scan all paper records to store them as digital records. You should also make sure they are filed and backed up to avoid the risk of losing records (and potentially having to pay a fine to HMRC).
You will also be obliged to retain some of those records for a set period if your business closes down. If you fail to do so, HMRC can impose fines as a penalty. HMRC fines can be in the thousands of pounds, so you will want to keep all of the relevant documents. The length of time that you must keep your records will depend on whether you are self-employed or run a limited company.
What If I Am Self-Employed?
If you are self-employed, a sole trader, or if your business is unincorporated, you are required to retain your records and documents for five years following the tax year and the tax return deadline. The tax return deadline is on 31 January. This means that if your business closes down in 2017, you will need to keep your documents (which you submitted as part of your tax return on 31 January 2017) until 31 January 2022.
The documents you must retain will include:
- sales documents;
- personal income;
- bank statements;
- purchase invoices;
- business expenses; and
- VAT information (if available).
If you are subject to a HMRC investigation, you will need to keep those records until HMRC tells you otherwise. If you are unsure, it is a good idea to contact HMRC and make sure you know what your obligations are.
Continue reading this article below the formWhat If I Am Closing a Limited Company?
If you are running a limited company that is liable to pay corporation tax, the rules on retaining documents are slightly different.
Generally, you must keep all records for six years from the end of the accounting period after your business closes. However, if the HMRC enquires into your business activity during a certain tax year, you will have to keep all documents until the enquiry is over.
You must keep some documentation for ten years rather than six if you operate a company. These include:
- the company’s statutory books (you must keep the company’s register while your business was in operation);
- VAT Mini One Stop Shop records; and
- any minutes of board meetings and resolutions.
What If I Lose My Records?
If you lose your records, you should let HMRC know immediately. HMRC will usually ask you to try to retain or reproduce some of those lost documents. For example, you may be able to get bank statements by getting into contact with your bank. If you fail to produce some documents when requested by HMRC, you may be liable for a fine. The fine can be up to £3000.
Key Takeaways
Keeping records of your business, especially after closure, is highly important to avoid potential fines from HMRC. If you are self-employed, you will want to make sure you keep relevant documents from six years after your business closure. However, if you are running a company, you will want to keep most of your documents for six years, and you must keep several for ten years. However, the rules for keeping business records will differ based on your business structure and the nature of your company. Generally, for sole traders, the documents that you should retain include:
- sales invoices;
- bank statements; and
- business expenses.
If you need help keeping records after business closure, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
You will have to keep your documents for six years after closure in normal circumstances. However, if HMRC is investigating you, you will need to keep them until HMRC says otherwise.
No. You can keep digital records, so long as they are eligible.
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