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Keeping financial records

We all need to keep financial records for various reasons. If you fill in a tax return, VAT return or claim benefits or tax credits, there are some special rules.

Here HM Revenue & Customs offer some helpful tips as part of their tax help series.

  1. why you need to keep records
  2. what records you should keep
  3. how long you should keep them for
  4. where to get further advice.

Keeping good records helps you

Having a good record keeping system which you keep up to date 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 time and accountancy costs
  • pay the correct amount of tax
  • receive the correct amount of benefits or credits
  • avoid paying any extra tax or penalties.

Why you need to keep records

If you have to fill in and send HM Revenue & Customs a tax return, the law says that you should keep all the records and documents you need to enter the correct figures. If HM Revenue & Customs need to check your return, they may ask to see the records you used to complete it.

Record keeping penalties

If you do not keep adequate records 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 you send HM Revenue & Customs an inaccurate return you may have to pay a penalty. Good, up to date records will help you fill in your return correctly and so help you to avoid this penalty. However, people do make mistakes. You will not have to pay a penalty if you can show HM Revenue & Customs that you took reasonable care to get your return right but still made a mistake. 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 sort of records you need to keep depends upon the type of tax you have to pay. Below are links to HM Revenue & Customs which give examples of the most common records you need to keep.

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). HM Revenue & Customs recommend 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 to us in a readable format, if we need to see it.

How long to keep your 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.

If you need to keep records for other reasons, for example the Companies’ Act requires limited companies to keep specific records and you also use those records for tax purposes, you need to be aware that there may be different time limits for retaining them. Be careful not to destroy any records you also use for tax purposes too soon.

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