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 Keeping  your  books  in  balance... 

Octopus  Bookkeeping  Services

  Practice Licence No:14234

Keeping records for tax

If you have to send HMRC a tax return, the law says that you must keep all the records and documents you need to complete the return. If you don't have adequate records or if you don't keep them for long enough, you may have to pay penalties.

Penalties for an inaccurate return

Keeping your records up to date will help you have all the information you need to fill in your return correctly. If you send HMRC an inaccurate return you may have to pay a penalty.

You won't have to pay a penalty if you can show 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
  • regularly updating your records
  • keeping your records securely
  • checking with HMRC or a tax adviser if there is something that you don't understand

How to keep your records

HMRC asks you to keep the original documents which show you've had tax deducted.  For example if you're an employee your P60 form from your employer (which shows your pay and tax information for the tax year).

HMRC recommend you keep all the original documents you receive.  This does not mean you need to keep them on paper.  Most records can be scanned and kept electronically on a computer or a storage device such as a CD or memory stick.  Make sure that whatever you use to keep records you:

  • have both the front and back of documents
  • can easily access them so you can pass them to HMRC

The records you need to keep

The records you'll need to keep and how long you need to keep them depends upon the type of tax you have to pay. Follow the links below for more information:

Record keeping for individuals and directors (Self Assessment)

Record keeping if you are self-employed (Self Assessment)

Record keeping for partners and partnerships (Self Assessment)

Records for Corporation Tax: what you need to keep

Accounts and records for your VAT

PAYE record keeping

Expenses and benefits record keeping

Record keeping for Construction Industry Scheme Contractors

Record keeping and Capital Gains Tax

Trust record keeping for tax purposes

Inheritance Tax and record keeping

Checking your business records

HM Revenue & Customs (HMRC) carry out checks on how businesses keep their records. If HMRC decide to look at your business records they will usually contact you by telephone. Businesses need to keep records to complete their tax returns correctly, and pay the right amount of tax at the right time to avoid interest and penalties.

When HMRC contact you by telephone

HMRC will write to you and then contact you by telephone to ask about your records. When they phone they will ask you questions to help them work out if you are keeping the business records you need to meet your legal responsibilities. The telephone call should take between 10 and 15 minutes.

From the replies you give the HMRC officer:

  • will assess whether you are likely to be able to submit an accurate tax return from your records
  • will tell you during the call and will confirm it in writing, if no further action will be taken at this stage
  • may feel you could do with some additional help and support - If so they will tell you on the call and pass your details to HMRC's                                Business Education and Support Team who will contact you with information about self-help guidance and training
  •  may decide you are at risk of keeping inadequate records in which case you would need a face to face visit - they will tell you this on the call
  •  may pass your details to the visiting booking team who will contact you to arrange a suitable date and time for the visit, and confirm that in writing

When HMRC visit your business 

If they feel you need a face to face visit, HMRC will contact you to agree a date and time. The visit will usually take around two hours.

On the visit the HMRC officer will:

  • ask you to explain how you run your business
  • note how you keep your business records
  • check a sample of your current business records - usually your records for the last four months and arrive at a decision as to whether your                business records are adequate or not

If your records are adequate the visiting officer will tell you at the visit and then confirm it in writing a few days later. This will be the end of your business records check.

If the visiting officer finds your record keeping needs improving they will discuss this with you and your agent, if they are at the meeting. The officer will then advise what you need to do to make your records adequate and what will happen next.

Using a professional advisor

It is not essential, but if you have an accountant or other professional advisor, you will be able to invite them to attend the visit.

If you do not have an advisor you can use form 64-8 if you want to authorise one to speak to HMRC about your tax affairs. Even if you have a professional advisor, you are personally responsible for your own tax affairs. You must make sure all the information your advisor supplies to HMRC is accurate.

Get form 64-8 to authorise your agent or adviser

Possible outcomes of a check

If there are no problems with your records

If your records are found to be adequate the visiting officer will tell you on the visit and then confirm it in writing a few days later. This will be the end of your business records check.

If you need to improve your record keeping

If your records are inadequate you may have to pay a record-keeping penalty. But before this happens HMRC will give you the opportunity, and further time, to bring them to an adequate standard. HMRC will specify what improvements need to be made, and will offer you as much help and support as you need to achieve this.

HMRC will arrange a follow up visit to check that you have made the necessary improvements. This will usually be within three months of the initial visit. If at the follow up visit you have improved your record keeping so that your records are adequate, HMRC will reduce the penalty to nil.

If you don't improve your record keeping

If at the follow up visit HMRC find that your records have still not improved to an adequate standard, a penalty will apply. The penalty is usually £500 for the first offence. For businesses in their first year of trading the penalty will be £250.

If during the business record check HMRC find that you have deliberately destroyed your records, a penalty of £3,000 would apply (this may be reduced to £1,500 if only some of your records are destroyed).

Inadequate records

In cases where inadequate records are found, HMRC will refer you for another business records check visit in two years time. If your records are again found to be inadequate you will have to pay a new penalty.

If your tax needs to be checked

If, during the business records check, HMRC identify that your tax returns may be inaccurate the visiting officer will pass your details to other teams. They may then contact you to carry out a check into your tax return. This may happen either because you tell HMRC that you've underpaid your tax, or they identify that you potentially have a significant tax liability.

If during the business records check HMRC find you need to register for VAT, PAYE or the Construction Industry Scheme they will pass your details to the appropriate team.