Contractors have been urged to ensure they keep meticulous financial records unless they want to face fines in excess of £3,000.

The Forum of Private Business is warning that, despite recently promising to take a 'light touch' approach to mistakes made in financial records following the VAT rise, HM Revenue & Customs (HMRC) is now planning to clamp down on small firms for "significant record keeping failures".

HMRC can demand records including invoices, bank statements and expenses going back over a six-year period, so contractors should do everything in their power to ensure that their account books are detailed and up-to-date.

Matt Holmes, accountancy adviser to the forum, said that people should prepare themselves to make sure they will not be fined for holes in their records.

"HMRC is planning to clamp down on small businesses tax payments and record keeping from the middle of 2011," he said.

"But it is important that firms act now to get their houses in order – for many this will represent a lengthy administrative headache."