This is an important subject area that many people, especially non-business people, struggle with in knowing the facts.
Broadly, records should be kept for a minimum of six years, but for:
- employers, Pay As You Earn (PAYE) records must be kept for 3 years (in addition to the current year)
- contractors in the Construction Industry Scheme (CIS), CIS records must be kept for 3 years (in addition to the current year)
- when completing a personal (non business) tax return, records need only be kept for 22 months from the end of the tax year to which they relate
The six year rule is a good one to remember however, should the need ever arise to make your records available for inspection. Remember that only records relating to the numbers in a tax return, and/or the accounts prepared in support of the return, will need to be made available.
There is no prescribed method for record-keeping; although some original paper documents which show what tax has been deducted for example, like a P60 (end of year certificate for PAYE) should be kept, most records can be kept electronically so long as:
- all the information on the document (front and back) is captured, and
- the information may be presented for inspection in a readable format
The advice given by HMRC is however to keep all original documents that are received.
These can nowadays be severe, depending on the circumstances.
As a general rule, if some records are mistakenly missing or lost, there should be no penalty (as HMRC acknowledge that accidents will happen). But it must be demonstrated that deliberate steps were taken to avoid or minimise the risk of this sort of occurrence (by for example taking regular backups of the scanned documents being stored electronically).
The penalties then increase according to whether the steps taken were not sufficient, if there was an intention to hide or fabricate any of the facts, and whether any errors were picked up by the taxpayer or by HMRC. Presently the maximum penalty that can be levied is 100% of the tax assessed as unpaid.
For more detailed information, please see the latest HMRC factsheet by following this link.