As a director of a VAT-registered private limited company, you must maintain accurate and complete records to comply with the Companies Act 2006, HMRC guidance and Making Tax Digital (MTD) requirements. Proper record-keeping ensures lawful trading, accurate tax submissions and preparedness for any HMRC enquiry. Only HMRC can require your business records, unless serious fraud has occurred, in which case law enforcement may become involved.
Why Record-Keeping Matters for HMRC
HMRC relies on your records to verify VAT returns, corporation tax computations and statutory filings. Good records:
- enable prompt, accurate MTD submissions
- support claims for input tax recovery
- facilitate the preparation of statutory accounts
- protect you during HMRC investigations
Without them you risk penalties, interest charges and potential criminal investigations in cases of deliberate fraud.
Mandatory Records for VAT-Registered Companies
Every VAT-registered limited company must retain the following:
- Business Bank Statements and Cash Book
full bank statements for all business accounts and an up-to-date cash book recording all payments and receipts - Sales Invoices
VAT-compliant sales invoices issued to customers showing VAT registration number, tax point, VAT rate and total VAT due - Purchase and Expense Invoices or Receipts
original VAT receipts and invoices for all purchases and business expenses, showing supplier VAT details - VAT Returns & HMRC Correspondence
digital submissions, quarterly VAT returns and any communications with HMRC concerning adjustments, inspections or assessments - Loan and Finance Agreements
hire purchase schedules, loan agreements and finance documents to support any interest or finance charges claimed - Company Statutory Records
registers of directors, shareholders and persons with significant control, confirmation statements, board minutes and share certificates - Accounting Records
ledgers, journals, trial balances and year-end accounts that underpin statutory report filings
How to Store Your Records
Under Making Tax Digital you must keep digital records throughout the accounting period and submit VAT returns via compatible software. You may also keep hard copies for your own backup, but digital originals or scanned copies are legally acceptable if they meet these criteria:
- complete and unaltered
- legible and readable
- stored securely with regular backups
Digital storage options include cloud accounting platforms such as FreeAgent, Xero or QuickBooks, combined with secure encrypted back-up drives or cloud file services.
Retention Periods
HMRC requires you to retain VAT and company records for at least six years from the end of the relevant accounting period. You may need to keep records longer if:
- the records relate to transactions spanning more than one period
- an HMRC enquiry or inspection is under way
- capital gains calculations depend on historical purchase information
Advantages and Disadvantages of Good Record-Keeping
Advantages
- accurate and timely VAT returns via MTD
- maximised VAT recovery on purchases
- clear audit trail for HMRC enquiries
- better cash-flow management and financial planning
- improved credibility with banks and investors
Disadvantages of Poor Practices
- incorrect or late VAT submissions
- inability to support input VAT claims
- difficulty reconciling cash flow and budgeting
- strain on business operations during HMRC inspections
- potential reputational damage
Penalties for Inadequate Record-Keeping
Failing to keep proper records can result in:
- fixed penalties up to £3,000 per accounting period for missing or incomplete records
- penalties for late or incorrect VAT returns, typically 2–15 per cent of the VAT due
- interest charges on late VAT payments
- surcharges if payments persistently fall late
- in severe cases of deliberate evasion, criminal prosecution and custodial sentences
For any VAT-registered private limited company, robust record-keeping is not optional. It underpins compliance with the Companies Act 2006, HMRC guidance and Making Tax Digital. By maintaining clear, digital records and storing them for the required periods, you safeguard your business against penalties and ensure seamless tax submissions.
Taxwise Accountancy specialises in helping directors implement compliant digital bookkeeping systems. Contact us today to ensure your company meets all record-keeping responsibilities and MTD requirements.
