Why good records matter more than you think

Under the Companies Act 2006, every limited company must keep adequate accounting records. This is not a suggestion or a nice-to-have — it is a legal duty that sits personally with the directors. The records must show and explain the company's transactions, disclose the financial position with reasonable accuracy at any point in time, and give you enough information to prepare accounts that comply with the law. If they fall short, you can face fines, and in serious cases disqualification.

There is a practical upside too. Almost every tax claim you make — business expenses, capital allowances, the employment allowance, research and development relief — depends on evidence. When an inspector asks how you arrived at a figure, a tidy set of records answers the question in minutes. A shoebox of faded receipts does not.

What counts as an accounting record

Accounting records are much broader than a spreadsheet of money in and money out. For a typical small company, the core set includes:

• Sales records — every invoice you issue, with the word 'invoice', a unique sequential number, your company name and registered number, address, the date, the customer, a description of the goods or services, the amount, and the VAT charged if you are registered.
• Purchase invoices and receipts — supplier invoices, till receipts, online order confirmations and credit notes.
• Bank and finance records — statements for every account, including savings, credit cards, loans and any payment platforms you use to take money.
• Payroll records — payslips, RTI submissions, P45s and P60s, pension contributions and employee expense claims.
• VAT records — returns, the calculations behind them, and the invoices supporting both sales and purchases.
• Contracts and agreements — leases, loan agreements, customer contracts and anything with a term of more than a year.
• An asset register — what the company owns, when it was bought and what it cost, which supports your capital allowance claims.
• Dividend vouchers and board minutes recording the decisions behind payments to shareholders.
• Director's loan account records — a running note of money you take out of the company and put in.

How long should you keep everything?

Assume six years as your working rule. The Companies Act requires a private company to keep accounting records for three years from the date they are made, but HMRC expects tax records to be kept for six years from the end of the relevant accounting period. VAT records are also six years, and PAYE records three years after the end of the tax year.

Some things deserve longer. Keep share records, board minutes and documents about ownership permanently — you may need to demonstrate the company's history years later. If you are ever under enquiry, or you have made a claim for losses or a capital gain, keep the paperwork until the matter is finally closed, even if that is well beyond six years.

Habits that keep the paperwork under control

• Keep business money entirely separate. One business current account, one business credit card. It is the single biggest time-saver there is.
• Set a regular slot. An hour a week, or a morning a month, beats a grim weekend every January.
• Capture receipts immediately. Photograph or scan them when you get them, and note what they were for while you still remember.
• Name files consistently. Year, month, supplier, document type. Future you will be grateful.
• Reconcile monthly. Match your bank statement to your records line by line, so nothing drifts.
• Back up off-site. Cloud storage plus a local copy is sensible for records you are legally required to keep.

Where directors most often slip up

• Mixing personal and business spending. Even a coffee bought on the company card needs a note of the business purpose.
• Cash payments with no receipt. If there is no evidence, the expense is usually disallowed and you pay tax on it.
• Losing track of the director's loan account. If you owe the company money and it is still outstanding nine months and one day after the year end, a 33.75% tax charge can apply.
• Dividends without paperwork. You need a voucher, a board minute and sufficient retained profits to cover the payment.
• Mileage claims without a log. Record the date, journey, miles and purpose for every trip.
• Assuming your bookkeeper has it all. They can only work with what you send them. Responsibility for the records remains yours.

Making year end straightforward

When your records are complete, the annual accounts and company tax return become a straightforward exercise rather than a reconstruction project. Your accountant can prepare them quickly, spot reliefs you might otherwise miss, and give you useful numbers to run the business with — not just historic ones filed away.

Good cloud accounting software helps, particularly if you are VAT registered and need to keep digital records. But software cannot make decisions for you: it still needs the receipts, the explanations and the discipline. Build the habits early, keep everything for six years, and treat record keeping as part of running the company rather than a chore that arrives once a year. Your future self — and your accountant — will thank you.