Every company must keep adequate accounting records under section 386 of the Companies Act 2006: records that show and explain its transactions, disclose its financial position with reasonable accuracy at any time, and let the directors prepare compliant accounts. They must be kept at the registered office or another place the directors choose, preserved for three years (private companies) or six years (public companies), and failure is a criminal offence by every officer in default. HMRC’s own rules usually require records to be kept for longer.

What does section 386 require?

Section 386(1) says every company must keep adequate accounting records. Section 386(2) defines adequate as sufficient:

  1. to show and explain the company’s transactions;
  2. to disclose with reasonable accuracy, at any time, the financial position of the company at that time; and
  3. to enable the directors to ensure that any accounts required to be prepared comply with the Act.

Section 386(3) adds two specific contents. The records must contain entries from day to day of all money received and spent by the company and what each receipt and payment was for, and a record of the company’s assets and liabilities.

The phrase “at any time” is the demanding part. A company that only brings its books up to date once a year, from a box of bank statements, cannot show its financial position with reasonable accuracy in the middle of the year. That is exactly when directors may need to know it, for example before paying a dividend or when deciding whether the company is still solvent.

What extra is needed if the business deals in goods?

Under section 386(4), where the business involves dealing in goods, the records must also contain:

  • statements of stock held at the end of each financial year;
  • all statements of stocktakings from which those year end stock statements were or will be prepared; and
  • except for goods sold by way of ordinary retail trade, statements of all goods sold and purchased, showing the goods and the buyers and sellers in enough detail to identify them.

The stocktake sheets themselves are therefore statutory records, not just working papers. Our guide to stock valuation covers how the count feeds into the accounts. Section 386(5) also requires a parent company to take reasonable steps to make sure a subsidiary undertaking that is outside these rules keeps records good enough for the group accounts.

What counts as accounting records in practice?

The explanatory notes to the Act (paragraph 639) say there is no specific definition, because records differ with the nature and complexity of the business. For a simple business they may include bank statements, purchase orders and sales and purchase invoices; a more sophisticated business may have integrated electronic records.

GOV.UK guidance for limited companies lists the records needed: all money received and spent, details of assets owned, debts owed by and to the company, year end stock and stocktakings, goods bought and sold and who they were bought from and sold to (unless the business is retail). It adds the supporting documents needed for the annual accounts and Company Tax Return, such as receipts, petty cash books, orders and delivery notes, invoices, contracts, sales books, till rolls, bank statements and correspondence.

Under section 1135 company records can be kept in hard copy or electronic form, arranged as the directors think fit, provided the information is adequately recorded for future reference. Electronic records must be capable of being reproduced in hard copy. Good double entry bookkeeping is the usual way of meeting the assets and liabilities requirement.

Where must the records be kept, and who can see them?

Section 388(1) requires the records to be kept at the company’s registered office or such other place as the directors think fit, and to be open to inspection by the company’s officers at all times. A director who is refused access by co directors, or an outsourced bookkeeper, is therefore entitled to insist.

If the records are kept outside the United Kingdom, section 388(2) and (3) require accounts and returns covering that business to be sent to, and kept at, a place in the UK. They must disclose the financial position with reasonable accuracy at intervals of not more than six months and allow the directors to prepare compliant accounts.

Records held by an accountant are still the company’s records for these purposes. Our page on an accountant’s lien over client records explains when a firm can and cannot hold them back.

How long must accounting records be kept?

Rule Minimum period Source
Companies Act, private company 3 years from the date the records are made Section 388(4)(a)
Companies Act, public company 6 years from the date the records are made Section 388(4)(b)
Corporation Tax Until the sixth anniversary of the end of the accounting period, or later if an enquiry is open or still possible Finance Act 1998, Schedule 18, paragraph 21

GOV.UK guidance says records should be kept for 6 years from the end of the last company financial year they relate to, or longer if they show a transaction covering more than one accounting period, relate to an asset expected to last more than 6 years, the Company Tax Return was sent late, or HMRC has started a compliance check. In practice the tax rule, not the three year Companies Act rule, decides when a private company can safely destroy records. Section 388(5) also makes the period subject to the insolvency rules.

What are the offences and penalties?

  • Failing to keep adequate records. Under section 387 every officer in default commits an offence. On conviction on indictment the maximum is two years’ imprisonment or a fine, or both; on summary conviction it is imprisonment or a fine, or both.
  • Breaching the location and inspection rules. Section 389(1) makes failure to comply with section 388(1) to (3) an offence by every officer in default, with the same maximum penalties.
  • Failing to preserve records. Under section 389(3) an officer commits an offence if they fail to take all reasonable steps to secure that records are kept for the required period, or intentionally cause the company to destroy them early.

For the first two offences, sections 387(2) and 389(2) give a defence where the person acted honestly and, in the circumstances in which the business was carried on, the default was excusable. Section 1121 explains that an officer, including any director, manager or secretary, is in default if they authorise or permit, participate in, or fail to take all reasonable steps to prevent the contravention.

The consequences go beyond the criminal law. HMRC can charge a penalty of up to £3,000 for each accounting period where tax records are not kept or preserved (Finance Act 1998, Schedule 18, paragraph 23), and GOV.UK warns that directors can be disqualified for not keeping accounting records; see director disqualification. In a liquidation, the Insolvency Service’s guidance for official receivers lists a director’s failure to introduce a proper accounting system as an example of conduct that could found a misfeasance claim.

How do the time limits work in a real case?

Illustration only. A private company has a 31 March year end. A supplier invoice dated 10 May 2025 falls into the accounting period ending 31 March 2026.

  • The Companies Act minimum is three years from when the record was made, so roughly May 2028.
  • For Corporation Tax the record must be kept until the sixth anniversary of the end of the period, 31 March 2032, and longer if HMRC opens an enquiry into that return.
  • If the invoice is for machinery expected to last ten years, GOV.UK guidance says to keep it for longer still.

Destroying the invoice in 2028 would comply with company law but could leave the company unable to support its tax return and exposed to an HMRC penalty.

What mistakes do companies make?

  • Mixing personal and company money. GOV.UK stresses a clear division between the company’s finances and those of its owners, usually through a separate business bank account.
  • Relying on the bank feed alone. Section 386(3)(b) needs a record of assets and liabilities, including amounts owed to and by the company.
  • Skipping the stocktake records. Year end stock statements and count sheets are required by section 386(4).
  • Losing records without telling HMRC. If records are lost, stolen or destroyed and cannot be replaced, GOV.UK says the company must do its best to recreate them, tell its Corporation Tax office straight away and include this in its Company Tax Return.

Company registers and minutes are separate obligations, covered in our guide to statutory registers, and sole traders follow different rules, explained in record keeping for the self employed.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.