How are you storing the financial records for your business?
In the course of a tax year, you’re likely to generate a lot of information, including supplier receipts, customer invoices, bank, credit and debit card statements, VAT and tax returns, payroll and accounting records.
What you need to hold on to – and how long for, depends on the status of your business. Here’s a quick reminder of the current rules:
Self-employed individuals (including sole traders & partnerships)
You must retain your financial records for at least five years beyond your next tax filing deadline. If you’re preparing your return for the tax year 2019/20 just ended, you’ll need to keep your records covering this period for five years beyond the filing deadline of 31st January 2021. The earliest you can reasonably dispose of these records therefore is1st February 2026.
If you operate your business as a limited company, you’re required to keep your records for at least six full financial years – as well as the year you’re in.
Let’s assume that like many businesses, you have a March year-end and are currently in your financial year 2020-21. If your current year began on 1st April 2020, you’ll have to keep your records covering this period until at least 1st April 2027.
- If your business is registered for VAT, you must keep records for at least six years. Companies registered for the VAT MOSS scheme (which only applies to certain types of businesses trading in Europe) must keep their VAT records for ten years.
Your business is required by law to securely retain records for these periods in case HMRC should decide to take a closer look at your affairs.
It’s potentially an enormous amount of data. Even a medium-sized business with a moderate level of transactions will generate a significant volume of information that must be retained.
The solution, of course, is to digitise your records. You only need to be able to demonstrate evidence of your transactions, so it’s not necessary to hold onto original invoices, receipts and the like.
Technology makes digitising records simple and affordable – but still, some business owners seem reluctant to let go of their paper records.
6 Reasons to Go Digital
1. Save space
If you’re currently keeping hard copy records, where are you storing them? They might be in filing cabinets at your offices, at home in your garage, spare bedroom, garden shed or cupboard under the stairs. You might even be paying for off-site storage. Wherever you’re keeping your paper records, wouldn’t you prefer to be putting your space – and your money to better use?
Stored as digital files or held in the cloud, your records will take up no room at all.
2. More secure
Depending on how and where it’s stored, paper can degrade over time. Your hard copy records are susceptible to damage or even destruction by a wide range of hazards including fire, flood and vermin. And once they’re gone, they’re gone forever.
Digital records on the other hand, can easily be backed up and stored at multiple locations, while records held in the cloud are secure and can be accessed from anywhere, at any time.
3. Save time & reduce your workload
Many tech solutions automate processing and store information online or in the cloud – delivering the benefits of digital record-keeping at the same time as saving time and reducing workload.
Tools like Receipt Bank allow you to capture and upload images of receipts (no more time wasted rummaging through pockets, drawers or gloveboxes searching for paper originals) and automatically process electronic invoices, categorising and entering them into your accounts for digital sign-off.
Having implemented Receipt Bank at Inca, we’re now saving many hours of admin and manual processing every month.
4. Save money
Using automated solutions like those mentioned above will save you (and your bookkeeper) time – and therefore money. But there are other savings too. Scanning receipts into your accounts as you receive them means no expenditure will go unrecorded, helping to keep your tax liability to a minimum and ensuring you don’t end up out of pocket. You’re also likely to make significant savings on the cost of storage, paper and printing.
5. Save the planet
Going paperless will help reduce the carbon footprint of your business. It will demonstrate to customers and staff that you take your corporate social responsibilities seriously and position you as a caring, environmentally friendly organisation.
6. Improve information accuracy
Algorithms are far better at carrying out mundane, repetitive tasks than humans. Tech solutions will quickly learn where to allocate income or expenditure on your accounts system. They’ll do it faster and more accurately than you ever can – and then digitally file the record away for you to instantly access whenever you need it.
The benefits of switching from paper to digital record-keeping are Incremental. The more paperwork your business creates and processes, the more time, money and effort will be freed up when you make the change.
If you’d like advice on transitioning to paperless record keeping and automating some of your financial admin processes, we’d be delighted to help. And if you found this article useful, we’d love you to add a comment – or simply like or share it on social media.
If your business has been affected by COVID-19 and you’d like help or advice on any aspect of your business finances, give us a call. We’re here to support you in any way we can.