This question comes up a lot here at the office. I am asked at least 3 times a week as there seems to be lots of confusion out there in the real world amongst business people.
The answer is it depends
If you just complete a Self Assessment Return each year as a consequence of having a company car or other employment benefits, then you should keep your paperwork relating to your claims and expenses for 2 years. The reason for this is that HMRC have a full year after the filing deadline to open an enquiry into your affairs. So for the tax year just ended on 5th April 2008, you need to keep this paperwork until at least April 2010.
However, if you are a business owner, the records need to be kept for at least 6 years but preferably longer. If your accounts year end is 30th June for example, your 2008 Self Assessment will include your accounts information for the year ended 30th June 2007. So paperwork for that year runs from the 1st July 2006 onwards. You should realistically therefore keep those records until at least April 2015.
I personally recommend people keep as many years as possible because you just never know when they may be useful. I know we are told from all quarters that Identity Fraud is rife and can only be prevented by shredding everything the minute you receive it, but a lack of important records during a full tax Investigation can make defence against HMRC proposed additions very difficult indeed.
If you are thinking of disposing of business records, I would strongly recommend you take advantage of micro-fiche techniques as much as possible, or keeping endless backups of your paperless office (as I do) so that all possible information is stored in a way you can get to it. Then you can shred with confidence knowing you can still answer probing questions easily. Most modern micro-fiche services and paperless office systems allow searching of documents so tracking things down is simplicity itself.
I hope this clears up a little confusion about business records but please do not hesitate to contact me if you have any questions, or would like any more information.