Introduction »

Relationships with records

Establishing and maintaining good business relationships without doubt would be considered important for the wellbeing, development and maybe even the survival of a modern business. Record keeping should be approached on a similar basis.

Keeping it under control

A good record keeping system saves time in the long run as up to date records will help you:

• keep track of your expenses
• ask for a bank loan or credit if you need to
• see quickly what you are owed by others and how much you owe them
• save accountancy costs
• pay the correct amount of tax
• receive the correct amount of benefits or tax credits
• avoid paying any extra tax or penalties.

Why you need to keep records

The law says that you should keep all records and documents you need to support the entries on your tax return. If HMRC need to check your return, they may ask to see the records you used to complete it.

Record keeping penalties

If adequate records are not kept or you do not keep your records for the required period of time, you may have to pay a penalty.

Penalties for an inaccurate return

If an inaccurate return is submitted a penalty may be due unless you can show that the mistake was made even though reasonable care was taken.

Some of the ways in which you can show you've taken reasonable care include:

• keeping full and accurate records which are regularly updated and saved securely
• checking with HMRC or an agent or accountant if there is something that you don't understand.

The records you need to keep

The records you need to keep will depend on the size and complexity of your business and the different taxes that you have to pay, collect or charge.

The HMRC website has a very useful help sheet with specific detailed guidance on records to keep in different situations, for example:

• Self-employed - www.hmrc.gov.uk/sa/rec-keep-self-emp.htm
• VAT - www.hmrc.gov.uk/vat/managing/returns-accounts/accounts.htm

How to keep your records

The law does not say how you must keep your records. You must keep some original paper documents which show that tax has been deducted. An example is form P60 (end of year certificate for PAYE). Generally it is recommended that you keep all original documents you receive.

Most other records can be kept electronically (on a computer or any storage device such as disk, CD, memory stick or microfilm) as long as the method you use:

• captures all the information on the document (front and back) and
• allows the information to be presented in a readable format if HMRC need to see it.

How long to keep records

As a general rule, you should keep your records for a minimum of six years. However, if you are:

• an employer, you need to keep Pay As You Earn (PAYE) records for 3 years (in addition to your current year)
• a contractor in the Construction Industry Scheme (CIS), you need to keep your CIS records for 3 years (in addition to your current year)
• keeping records to complete a personal (non business) tax return, you only need to keep them for 22 months from the end of the tax year to which they relate.

You may need to keep records for other reasons, as well as tax purposes. For example, the Companies' Act requires limited companies to keep specific records. Such records may need to be retained for different time limits, so be careful not to destroy any records you also use for tax purposes too soon.

Introduction »