How long must a business keep records of its invoices?
In this article, you’ll learn:
How long a business must keep invoice records
How a business can store its invoices
Who is responsible for keeping these records
What penalties a business may face if it does not comply with these regulations
Once a business has sent an invoice and received a payment, the invoice needs to be filed by the company for a minimum of 6 years. Not only does this help your business to run smoothly, but it also means you can account for your income if asked to by HMRC.
Keeping records of your invoices - the basics
All businesses should keep business records that detail their financial transactions. This will help the owners to keep track of their performance and manage their taxation. To be able to do this, records of all client invoices must be stored and available for inspection. This is legally required by HMRC.
How long to keep business invoices
In the UK, invoices are legal documents that the issuing business must keep for 6 years from the end of the financial year it was issued. This rule is applicable for both the sales invoices the business sends to customers, as well as purchase invoices it receives from its suppliers.
It may be necessary to keep invoices for longer periods if they show a transaction that covers more than one of the company’s accounting periods.
Where to keep business invoices
HMRC does not specify any rules about how a business must keep its records unless your business must comply with Making Tax Digital (MTD), in which case, invoices must be kept digitally. If you do not need to comply with MTD, invoices can be saved digitally or kept as hard copies. What's important is that they’re kept accurately, accessibly and are legible.
Of course, keeping paper copies of customer invoices for 6 years will take up space. Even if you keep all of your invoices in PDF format on your computer hard drive, you run the risk of your computer crashing and possibly losing the data.
Therefore, cloud-based invoicing software is a suitable solution: as long as you have an internet connection, you can access all of your records at any time and the data won’t be lost or corrupted. Invoicing software will also make it more manageable to find specific records in the event an invoice is questioned by HMRC.
Who is responsible for keeping invoices?
It’s the responsibility of the business owner to ensure that the records are accurately kept. This also means that if you choose to use invoicing software to store your invoices, you must ensure they’re reputable and will support you. HMRC won’t accept excuses for lost documents.
If you’re not using invoicing software to store your invoices, make sure that you have a backup. Paper copies of invoices may be backed up using DropBox or Google Drive, for example.
Why is it necessary to keep invoices?
Businesses need to keep invoices for 6 years for 2 reasons:
Invoice records are used by HMRC to check that businesses are compliant with regulations
Invoice records help businesses collect outstanding payments
Invoices are an official request for payment that can be used to prove the legitimacy of your business’s finances. They can be requested by HMRC during the audit of a business. HMRC has the legal right to check your business records at any time to ensure that the correct amount of tax has been paid.
Keeping records of invoices will also mean you can collect any unpaid customer invoices. An invoice entitles you to payment from the customer. Keeping records of these documents will allow you to begin legal proceedings to collect overdue payments, if necessary.
Inaccurate records - the basics
HMRC will inform you if they’re intending to meet. This will usually take around two hours. During the inspection, the HMRC officer will ask you to explain how you run your business, note how you keep your business records, check a sample of your business records, and assess whether or not your business records are adequate.
If your records are deemed inadequate, HMRC will give you the chance to rectify any issues and tell you what improvements need to be made.
Penalties for not retaining invoices
If improvements aren’t made, you’ll incur a penalty proportionate to the offence. Usually, this is £500 for the first offence, and £250 if the business is in the first year of trading. However, if a business has deliberately destroyed its records, HMRC can fine the company up to £3,000.
To avoid fines from HMRC, always keep invoices for at least 6 years from the end of the fiscal year it relates to.
If your records are lost, stolen or destroyed
If your records are lost, stolen or destroyed and can’t be recovered, you’ll need to contact HMRC for advice. You’ll need to inform your Corporation Tax office immediately, and include this information in your Company Tax Return. Normally, you should then try to recreate the documents as best as you can.
Invoicing software and storing your invoices
Invoicing software is a great way to keep invoices organised and ensure transparency if you’re audited. With SumUp Invoices, you can keep your invoices stored in order and always have easy access. By using this cloud-based solution, it’s simple to present your business records if asked.
Archive your old invoices
Like most invoicing software, with SumUp Invoices, you have the option of archiving your invoices so they’re saved to your account but disappear from most of your lists. This way, you’re no longer distracted by invoices that have already been paid and don’t require further attention, but they’re still available for inspection if necessary.
Archiving your old invoices can also help you organise your invoice list so it only includes invoices from the current financial year. This will help you get an easier overview of the documents that require attention.
Retaining invoicing records - a summary
As a business, you have to retain the invoices you issue. These documents are used to explain the transactions in your business account. Most importantly, remember:
Invoices must be kept for 6 years from the end of the financial year it was issued in, and longer if a transaction covers more than one of the company’s accounting periods.
Penalties will be incurred if this rule is violated.
If business records are lost, stolen, or otherwise destroyed, this must be reported to HMRC as early as possible, and documents should be recreated as best as possible.
SumUp Invoices is invoicing software that can help you create, store and organise your sales documentation. You can also include a payment link on your invoices to accept online payments quickly.