Sounds like a simple question, right? Wrong…

This story is part of a series on being smart with paper which kicked off with The Paper Strategy. Start there if you’ve not seen it, or if you’ve not read it for a while.

As far as business records go, more and more tax authorities & regulatory bodies are moving away from paper and towards online filing & payment, e.g. for annual returns & accounts, payroll & tax. US, UK and others increasingly require online filing & payment, and are imposing penalties for staying offline. One of only two exemptions for submitting & paying UK VAT online is that:

…your business is run by practising members of a religious society, whose beliefs prevent them from using computers.”

Businesses are also increasingly able to invoice and bill each other electronically. I can’t remember the last time any of my businesses submitted a paper invoice. My business tax, PAYE, annual returns and accounts are all done electronically now.

We’ll be looking here mainly at UK, US, Canada & Australia unless otherwise stated, but will be adding to and updating this story as significant new information becomes available.

Stop press: The UK tax authority (HMRC) recently launched a crackdown on business record keeping at small companies. As well as saving time and money, this is another reason to be getting your records in order if you run a UK business.

Why do I need to keep business records?

If you’re running a business and you want to stay in business then you don’t have a choice on this one. It’s a legal requirement. There are however big benefits to getting them organised, to hand & keeping them for long enough:

  • Avoid paying more tax
  • Avoid penalties & interest
  • Reduce accountants fees by saving them time
  • Make it easier to get a loan or grant

What business records do I need to keep – and for how long?

This depends on the type and size of your business, and of course which authorities you come under. Our scope here is for small businesses, sole traders and self-employed. Here are some useful resources organised by country:

  • UK – the BusinessLink website is a great resource for navigating what’s required. Unfortunately the regional Business Link service will be shutdown on 25 November 2011, but we’re told the website is to be beefed up. HMRC offer a useful fact sheet and free workshops in many local areas in UK.
  • US – the US Small Business Administration has all kinds of information and advice at the federal, state and local level. The Internal Revenue Service (IRS) website summarises what’s needed on tax.
  • Canada – the Canada Revenue Agency (CRA) website sets out what is required. Another great resource here is the national non-profit, the Institute of Professional Bookkeepers of Canada, the IPBC.
  • Australia – the Australian Taxation Office provide some guidelines. The Australian Lifehacker site has a useful article on keeping tax records.

I’d also recommend checking out any additional requirements imposed by your business insurers, as well as implied by contracts with partners and clients. Until recently, UK Employers’ Liability Insurance documents needed to be kept for 40 years!

Can I keep computerised records & ditch the paper?

The authorities we’ve looked at so far all say, yes, of course…but…there are important conditions and some cases where ‘originals’ have to be kept. The details vary by country as you’d expect:
The general rules seem to boil down to making sure the electronic version:
  • Is legible: can be easily be read by a human
  • Is available on demand: e.g. on request at short notice by a tax official
  • Includes a complete replica (both sides) of the original: including terms & conditions where it makes sense
  • Is backed-up: usual good practise here, including offsite and often enough
  • Optional: I’m personally making sure that scanned copies are also searchable: if only to help me find stuff quickly

Do I need to keep any paper anymore?

Again this varies by country:

  • UK – HMRC single out specific business documents that must be kept in their ‘original’ form. Of course, original may not be paper. And, I’d be wary of treating this as a complete list. Just keep the originals on this list if they apply to you.
  • USCanada & Australia – Please see the general sources linked to above under What business records do I have to keep?

It’s proving very difficult to get a definitive answer to this question. So far, I’ve contacted dozens of organisations & professionals and I get told either, 1) we don’t know, or 2) try someone else, or 3) keep the paper records, just in case.

So for now, watch this space, and always seek local professional advice before destroying any business document.

State of play

The main reason most of us have failed to go completely paperless so far is that we’re often unsure as to which paper documents it’s safe to destroy. So, we either remain swamped in paper, or we go to the trouble of scanning, storing, backing-up etc AND have to keep storing some paper. We ditch some but keep the rest, just in case. This is the worst-case scenario. When we need something, where do we look? Which version is most up-to-date? Nightmare!

So, until we can find a definitive list of which documents we absolutely must keep in paper form it’s not going to be easy. Once we do know for sure what paper we can ditch (of course, I mean, shred) then … happy days.

Advice for now: only destroy the paper that you are 100% sure about: that will often mean getting tailored professional advice. If in doubt, keep it.

Meanwhile, I’ll be updating this story as we discover more. And, we’ll be talking about how to go about scanning, handling & storing electronic paperwork in upcoming stories.

What about you?

What are your experiences? What can you add?

Important disclaimer

The purpose of this post is to help give you a head start on the questions to ask, and where to look for answers. It is for general information purposes only and is not intended to constitute legal, accounting or tax advice.

Specific laws & regulations change frequently, they are complex, and their applicability will vary depending on your own circumstances. You, and not Muse Stories are responsible for the applicability and accuracy of information as it relates to your specific circumstances.