Dear Contractor Doctor,
After running my own contractor limited company for nearly twenty years now, my garage is overflowing with boxes full of bank statements, tax returns, receipts and other paperwork that my accountant insists I keep.
I already scan most of my receipts, complete timesheets online and send agency and client invoices by email as PDFs. But I’m seriously thinking of moving to an online contractor accountant in an attempt to reduce the amount of paperwork I have to keep, and emptying the garage.
Would that mean I can stop keeping hardcopies altogether? If not, what hardcopy paperwork must I keep for my limited company?
Contractor Doctor says:
The short answer is very little, according to Matt Poyser, managing director of online contractor accountant inniAccounts. “Everyone is under pressure to reduce costs and improve efficiency. Technology in the form of electronic recordkeeping and archiving plays a key role in achieving this,” he says.
“Companies House and HMRC are themselves working towards fully electronic operation. With 83% of companies formed electronically and 80% of Companies House statutory documentation able to be filed electronically, it demonstrates the commitment and support of these organisations to electronic recordkeeping.”
However according to Poyser, because technology is evolving at such a pace, the guidance from HMRC and Companies House about what hardcopies should be retained is not always clear: “If you review the guidelines set out by HMRC and Companies House, you will see that overall they are happy with most records being held electronically. The main stipulations are that the information must be accessible and legible.”
Turning paper trails into electronic footprints
Poyser advises: “When it comes to hardcopies, the rule of thumb is that anything requiring a signature or that might need to be used in court should be kept.” Specifically, he recommends that contractors retain original hardcopies of:
- Share certificates, stock transfer forms, board minutes, shareholders’ resolutions and company accounts
- Signed official agreements or documents generated by the company, such as contracts and agreements
- Signed corporation tax returns and personal self-assessment forms
- Bank statements and interest certificates. Annual summary interest certificates and bank statements are acceptable.
“Although in theory original bank statements should be kept, in practice so many businesses have switched to online banking that as long as the ‘original’ statements can be retrieved from the bank’s online banking system, the contractor should be in the clear.”
Companies House and HMRC are themselves working towards fully electronic operation
Matt Poyser, inniAccounts
If relying on electronic bank statements, Poyser recommends that contractors check how far back their bank retains their electronic statements online to ensure they can access both business and personal banking records going back up to six years. If ongoing access to older records is not possible, then contractors would be advised to retain annual account summaries and interest certificates.
Make sure everything is accessible and legible
HMRC will accept electronic versions of all the prime accounting paper business records that can take up lots of room in a filing cabinet, such as invoices and receipts, as long as they are all accessible and legible.
HMRC’s view of business records is broad and includes:
- Annual accounts, including profit and loss accounts
- Pay As You Earn (PAYE) records
- Bank statements and paying-in slips
- Purchase and sales books
- Purchase invoices and copy sales invoices
- Relevant business correspondence
- VAT accounts.
“There are so many great technologies available now for creating and storing electronic records that contractors can choose just to keep electronic bookkeeping files,” says Poyser. “But it is critical to consider that if you use online systems, you ensure you are able to download and retain those electronic records securely for up to six years.
“That’s because you may need them if your company ceases trading or if you change your accountant. You should also make sure that any items you turn into electronic formats are useable outside of the software and are acceptable evidence of your business records.”
Potential paperless pitfalls
Losing electronic records because they were not backed up is the same as having an office filing system destroyed by flood or fire, and HMRC can demand that contractors reconstruct all their records, often at significant expense and time.
Poyser also highlights extreme situations where retaining the original hardcopy could be valuable: “Should a contractor ever become embroiled in a serious legal dispute, retaining the originals could be important. In certain circumstances, the UK courts treat documents not in their original form as hearsay.”
Other benefits of electronic recordkeeping and online accounting
Alongside the obvious benefits of saving trees and space, Poyser explains that there are other benefits to electronic filing and online accounting systems: “Online accounting systems automatically generate electronic records of invoices, payslips, mileage logs and securely back them up as well.”
Because electronic records can be fully searchable, a well structured electronic filing system can be a boon for contractors who need to track down a particular invoice or receipt, perhaps in response to a client query.
And with HMRC’s Business Records Checks (BRCs) of small businesses becoming a permanent feature, an online accounting system that assists contractors to keep high quality business records goes a long way to making any inspection as quick and painless as possible for all.
“We’ve even come across HMRC inspectors who prefer conducting reviews of businesses with almost solely electronic records because they can find the information required much easier and faster,” adds Poyser.
Good luck with your contracting!