What records should I keep for my limited company?
As a director of a limited company you have many responsibilities, including a specific duty to keep books and records. You might employ people to assist with your duties, but as a director you are ultimately responsible.
It might seem like an onerous task but maintaining proper records is not only required by law, but key to monitoring the company’s financial position at any given time. By paying attention to company records you can justify transactions, remuneration or dividends, and have peace of mind in the event queries are raised by third parties, such as HM Revenue and Customs.
Limited companies and Limited Liability Partnerships are legally required to keep adequate accounting records, that include a record of all money received and spent by the company, details of the assets owned by the company, details of any debts which the company owes, and information which is required to prepare and file your annual accounts and tax return.
In accordance with S386 of the Companies Act 2006, ‘adequate’ is defined as records which are sufficient to show and explain company transactions, and to disclose with reasonable accuracy (at any time) the financial position of the company at that time.
These company records must be kept for at least 3 years. However, tax legislation requires some information to be kept for 6 years. Therefore, it is good practice to keep all accounting records for at least 6 years from the date they are produced.
It is a criminal offence to fail to keep adequate accounting records. Directors (or in the case of an LLP, members) can be fined, or prosecuted, or both if they fail to keep records without reasonable cause.
In addition to the above, you must also keep records about the company itself.
This must include details of all directors, shareholders and company secretaries; details of all debentures, or mortgages over company assets; details of board meetings and shareholders meetings, with copies of the decisions made or resolutions passed; and details of transactions relating to shares or changes in share capital.
You must also keep a register of ‘people with significant control’ (PSC). This means a register of any person (or corporate entity, or trust) that holds more than 25% of the issued shares or voting rights, or can appoint or remove a majority of directors, or otherwise can influence or control decision making.
Unless otherwise notified, Companies House will assume that statutory registers are held at the company’s registered office address. If that is not possible, then you can keep some or all of them at a Single Alternative Inspection Location.
What happens to company records in liquidation?
Liquidation is a common insolvency procedure, used if a company cannot continue trading. If a liquidator is appointed to a company, the liquidator will review the company’s books and records (including accounts, bank statements, cash records, financial statements, invoices, purchase ledgers etc) to determine the reasons for company failure and identify whether any transactions require review.
If company records have not been maintained then it may be difficult to justify the decisions taken, which could leave you in a difficult position if a particular transaction is challenged. For this reason, it is key to document all decisions taken, by reference to supporting evidence.
Once a company is in liquidation, and the records have been delivered up, the liquidator will deal with the retention of company records.
What practical steps can I take to ensure records are adequate?
There are some simple habits you could adopt which may help with adequate record keeping:
- Adopt policies and procedures
Have in place policies relating to company records, and procedures which are easy to follow. This should ensure that you and your staff take the same approach to record keeping and make them easier to access when required.
- Go digital
You can keep records electronically, or as part of a software program, or on paper. If you have digital copies of documents such as sales invoices, purchase orders etc, there is no requirement to keep paper copies as well. Your accounting software may even store digital records which link to accounting transactions.
- Stick to a plan
Allocate time, whether weekly or monthly, to deal with financial administration. If you genuinely do not have the time to spare, then make it a key responsibility for a trusted member of staff.
Contact Insolvency Practitioners
Keywood Group is a Licenced Insolvency Practice. If you have any concerns as to whether your business is insolvent our friendly team will work with you to assess its financial position, and the options available. We provide transparent advice on the implications of each option, and will ensure that you understand fully your obligations as a director.
If you want further information, please contact us for a no obligation chat.