Companies generate stacks of documents and managing them correctly is crucial. It can be complicated to balance organizational requirements, employee interests, and legal restrictions. Proper record retention is especially important for certain financial documents, where non-compliance results in stiff fines and possible legal action.
For most organizations, financial records make up the majority of their files and documents. These records must be kept safe but also accessible so that decision-makers can promptly get at the data they need. In short, proper record management is essential.
‘Financial records’ is a broad category containing many types of documents, each with accompanying regulations. Here are some of the main categories your UK-based business needs to consider when deciding how long you need to retain different types of documents:
Invoices, receipts, employee payroll, purchases, expenses, VAT records, tax returns and any supporting documents are all accounting records. They must be stored for at least three years. Public companies need to store these documents for at least six years, although we suggest that even private companies adopt this extended retention period.
Whether these records are stored on paper or digitally, they’re subject to the Companies Act 2006 and the VAT Act 1994 and must be kept at a registered office or other location approved by the directors of the business. Appropriate alternative storage locations include an accountancy firm, a satellite office, or a records management facility. These documents must be accessible to officers of the company — and anyone else they grant permission to — for prompt inspection.
All documents related to taxes and money that a business has received or spent are regulated by the Taxes Management Act. They must be kept for a minimum of five years from the last date on which the return was filed.
These documents include paid invoices, credit card receipts, receipts for cash transactions, bank statements, checks, and more. As with accounting records, we advise that they’re stored in a registered office or other approved location.
Employee insurance records need to be retained for three years after the policy lapses, according to the 1998 Data Protection Act. If you’re in the insurance business, there are separate regulations which apply to policies for members of the public.
The Limitation Act 1980 also requires business agreements, such as contracts and former client policies, to be stored for six years. Failure to do so can land the company with a severe fine.
Wage and personnel records
Many types of records fall into the category of ‘wage and personnel records,’ and they can overlap with some of the previously mentioned types. Businesses must refer to the rules set out in the Employment Rights Act 1996, in addition to the other acts mentioned earlier, to determine how long they must keep these records.
Personnel records are income tax, information about pay, payroll, national insurance contributions, annual earning summaries, application forms, holiday information, medical records, expense accounts, and overtime details, among other documents. This type of documentation varies from company to company, but any documents which refer to specific employees should be considered personnel records.
The Data Protection Act 1998 says that documents regarding wages must be stored for six years. This act also requires that companies store any confidential personnel files until seven years after the employee leaves the company.
Why good records management matters
Proper storage of records according to legal standards can be challenging for even the best administrators. However, it’s well worth the effort, as it can save the company from fines of up to £500,000, and even prevent scandals like the infamous Enron financial disaster. Financial regulations aren’t likely to loosen any time soon, and fines are only increasing. That means that understanding the regulatory environment is crucial for every sort of company, from large corporations right down to small and medium-sized businesses.
A responsible record retention policy should also include provisions for archiving and disposing of documents after the statutory period elapses. Once a company is no longer legally required to store documents, they may nonetheless choose to keep them as part of an internal policy. Whenever a company decides to discard old records, a records management service can offer disposal options to ensure that confidential information is fully destroyed.
Many businesses find that, given the time and effort required to maintain best practices, it’s easier to work with a records management company. That way, internal resources are freed up for other projects, such as growing the business. Leaving record management to the professionals ensures that regulations are followed, confidential data is protected, and your employees can focus on doing what they do best.