Doctor, doctor, what records do I need to keep for HMRC?

Pile of papers

Tax payers in the UK are responsible for including the correct information on their tax return, and so tax is reported on the “Self Assessment” basis, meaning that tax payers prepare and file their own tax returns (often with the assistance, advice and support of accountants) and they then pay over any tax due.

However HM Revenue & Customs (HMRC) can, and quite often do, query tax returns and will ask the tax payer and their accountants for further detail or information on specific items included on the tax return.  These enquiries are also not just limited to the current year – HMRC can query tax returns from previous years, therefore, keeping good records and also retaining these for a number of years is very important.

Keep your records

For companies, HMRC can request information from the previous six years.

It is, therefore, important you keep your accounting records for a particular accounting period for at least six years from the end of that period eg for an accounting period ended 31st December 2015, you should keep the accounting records until at least 31st December 2021.

If you do not keep records for this length of time and HMRC decides to check a tax return and you cannot provide the records that you used to complete the return, you could be liable to penalties.

These records can be kept electronically and as long as the method used to scan the original records captures all the information (front and back) on the document and so allows you to present this information to HMRC in a readable format if requested, you do not need to keep the original paper records.

What to keep

For a company, a lot of the records you are required to keep will be able to be maintained by a good quality accounting system eg Sage, Twinfield, Quickbooks, Xero, etc. In general, though, the following are records you should retain:

Sales records – copies of sales invoices raised, sales receipts.

Purchase records – copies of purchase invoices, purchase payments.

Bank – copies of bank statements, paying in slips, cheque book stubs.  Details of any amounts paid in or taken out of the business account by the directors/shareholders.

Assets – copies of invoices relating to the purchase of assets and details of any assets sold.

Stock – carry out a year end stocktake and maintain up to date stock records reconciling the stock you have purchased, against what was sold, so leaving the remaining stock still available.  Copies of supporting documents in relation to shipments of goods etc.

Payroll – all payroll records for the period including copy payslips and report.  Details of any benefits provided to employees outside of the payroll.

Petty cash – a register or petty cash book detailing all items going through petty cash along with supporting invoices/documents.  This petty cash book should then reconcile to the actual balance kept in petty cash.

Article published on 15th Jan 2016.

Michael O’Brien is a partner at accountancy firm Kreston Reeves looking after accounts, outsourcing, technology and international.