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Record Keeping: The Basics

Short Answer

You must keep all sales invoices, purchase invoices, receipts and bank statements for six years

In this post we overview the basics of the record keeping for Contractors and Small Businesses.

What you need to keep

The Directors of a Limited Company have a legal duty to keep ‘adequate accounting records’ for six years from the transaction date. Failure to do this is a criminal offence.

By ‘adequate’ they effectively mean enough original documents to recreate the accounts from scratch should it be necessary.

So what should you hold on to:

  1. Copies of all sales invoices raised (or the ability to reproduce them from your accounting software)
  2. Copies of all purchases invoices and receipts you receive when making purchases
  3. Company bank and credit card statements
  4. Copies of all correspondence with HMRC and VAT

In most cases that is sufficient.

A note on purchase invoices / receipts

When you buy something from most shops you are given two receipts, one is a credit/debit card confirmation and the other is a ‘proper’ receipt showing what you bought and the VAT on that purchase. You do not need to keep the card confirmation but you must keep the other proper one.

This is especially important if you are VAT registered. To make claims to recover VAT you MUST have a copy of the VAT receipt showing how much VAT was included in your purchase. HMRC does regularly ask to see these documents when conducting VAT compliance checks.

How you should keep them

How you keep these records is up to you. What’s important is that if a HMRC inspector comes to your business and says ‘Show me the receipt for this purchase you made on 14/05/2015 for £200 + VAT’ you can pull it out in a reasonable amount of time.

Digital or Paper Copies

These days HMRC fully accept that it is fine to keep electronic copies of documents. Just make sure any scan or photo you take of the documents is clearly readable. A blurry photo that’s impossible to read is of no use to anyone.

Our Recommendation

We think that the best place to keep your invoices and receipts is in Xero alongside the relevant record.
On almost any screen in Xero you can drag in a PDF and it will attach the document to that page.

Here is a really short video showing how to add an invoice to a ‘Bill’ and then how to see it again: