How Long Should I Keep My Accounts Payable Records?
July 7, 2022
Estimated Reading Time: 3 minutes
Knowing how to manage document storage may not sound exciting, but it is one of the most important things a company can do to protect itself legally and financially.
While organizations don’t want to drown in files, getting rid of them too quickly can potentially put a company in an awkward position. Without the appropriate documentation, you could trouble succession planning issues. Come audit season, a failure to maintain proper records could lead to issues with tax authorities. In human resources, throwing away a new hire’s paperwork too soon could also lead to potential disputes.
Of course, knowing that you need to hold on to certain documents is only part of the battle. Many businesses are not quite clear about how long they need to hold onto them. The answer often depends on where your business is located. Let’s take a look at the regulations in three different countries.
The IRS states that the length of time that a business should keep a document “depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction, or credit shown on your tax return until the period of limitations for that tax return runs out.”
The U.S. Chamber of Commerce elaborates: “Document retention guidelines typically require businesses to store records for one, three, or seven years. In some cases, you will need to keep the records forever.”
For accounts payable teams, paperwork like invoices should be kept for at least seven years. However, an organization’s certified public accountant (CPA) may recommend some documents be kept indefinitely.
According to the official Government of Canada webpage, businesses must keep their records for a total of six years from the end of the last tax year the document applies to, with the tax year referring to the company’s fiscal period.
For those who wish to dispose of records prior to the six-year period, permission must be obtained from the Canadian Revenue Agency. To do submit a request, an authorized representative of the company must:
Failure to obtain permission before destroying the documents can result in prosecution. In addition, applying for permission does not guarantee that the request will be granted.
Like Canada, the UK requires companies to keep records for six years from the end of the last financial year to which they apply. Documents may have to be kept for longer if:
- they show a transaction that covers more than one of the company’s accounting periods
- the company has bought something that it expects to last more than 6 years, like equipment or machinery
- you sent your Company Tax Return late
- HMRC has started a compliance check into your Company Tax Return
The government further states that those not in compliance, “can be fined £3,000 by HMRC or disqualified as a company director if you do not keep accounting records.”
The Automation Answer
Storing paper documents can be time-consuming, costly, and take up valuable space in the office. Paper records are at risk of being lost or damaged, a simple mistake in filing can have serious repercussions come audit season.
For accounts payable teams, adopting an automation solution can help do away with these concerns. Many software solutions will store documents for up to seven years, eliminating storage costs completely.
Digitization also helps facilitate finding the right documents come audit season. For instance, a search and filter tool can help users quickly retrieve data by entering simple information like vendor name, cost, or invoice number.
To learn more about how automation can assist with the storage and retrieval of your financial documents, view “How to Search and Filter AP Data with Global Search,” a Beanworks Bean Talk Video
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