A crucial obligation that individuals often deem less significant while meeting their tax responsibilities is keeping the tax records with them. Rather, maintaining accurate tax records is essential for individuals, self-employed workers, and businesses alike in the UK. However, how long should you keep your tax records is the ultimate question here.
With proper record-keeping, you can not only maintain compliance with HMRC regulations but can also produce them as concrete proof of evidence when faced with audits or disputes.
The answer to that question differs depending on your employment status, whether you are self-employed or running a business. Accordingly, this blog highlights HMRC’s guidelines on record retention and why maintaining tax records is pivotal in ensuring your financial security.
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How long should you keep your tax records? HMRC’s general guidelines explained:
HMRC has specific rules for how long should you keep your tax records. More importantly, the retention or record-keeping period depends on whether you are employed, self-employed, or running a limited company. Hence, we will separately go through them to learn what the tax records retention period is for each:
For employees (individuals paid through PAYE):
For all the employees who pay their taxes through PAYE, HMRC advises keeping your records for at least 22 months after the end of the tax year. This includes:
P45 and P60 forms: The P45 form is important, for if you leave your job, part 1A of this form displays your pay and income tax to the date you left. Similarly, your P60 document shows your tax details, such as the income deducted and pension, for the tax year.
P11D form: It includes the details of your benefits and expense claims, like a company car or health insurance.
Payslips: A payslip is an essential document that an employer gives to an employee, typically on a regular or monthly basis. It details their earnings, deductions, and other financial information pertinent to their pay for a specific period.
Benefits records: All the benefits you have obtained from your employer by virtue of the employment, including state pension, statutory sick pay, statutory maternity, paternity or adoption pay, and jobseeker’s allowance.
Bank statements: They contain your tax-related transactions.
Interest, dividend, or other income: Any tax deduction certificates your bank has supplied you, dividend vouchers you have received from UK companies, or the details of any income you have received from a trust
Lastly, by keeping these records, you can verify your income and deductions in case of an HMRC query.
For self-employed individuals:
Under HMRC guidelines, it is obligatory for self-employed individuals to keep records pertaining to all their business transactions, including income, expenses, and other relevant documents. By doing so, they can not only effectively fulfil their tax obligations but can also produce them as verifiable evidence when an audit takes place and help make a financial forecast.
Now, as for how long should you keep your tax records, in line with the latest tax laws in the UK, the standard guideline for self-employed individuals is to keep their financial records for five years after the end of the tax year.
To explain further, self-employed workers must keep their records for at least 5 years after the 31 January tax return submission deadline of the relevant tax year.
For instance, if you filed your 2022-2023 tax return online by 31 January 2024, you must keep your records until at least the end of January 2029.
These records include:
- All sales invoices and receipts.
- Bank statements and business transactions.
- VAT records (if registered).
- Expenses, including travel and office costs.
- Self-assessment tax returns and correspondence with HMRC.
However, it is worth highlighting here that if you fail to submit your return on time and instead file it extremely late, say, four years after the deadline, you are obligated to retain your records for at least 15 months after filing that tax return or else you might face a penalty from HMRC.
Moving further, while records are typically kept for five years, this rule is not static or fixed. There are a few exceptions when the records are not necessarily kept for five years. Let’s go through these exceptions:
- The self-employed individuals who have registered for Value Added Tax (VAT) must keep VAT records for at least six years.
- Similarly, if the self-employed businesses have employees, their PAYE (Pay As You Earn) records, such as payroll and employee details, should necessarily be retained for at least three years from the end of the tax year they relate to. For greater clarity, employers should keep the PAYE records for 2024/25 until at least 5th April 2028.
- Lastly, you will maintain the records related to capital gains assets tax and property transactions for at least five years following the tax year of the transaction.
Making Tax Digital (MTD): An efficient way of record-keeping:
The UK government has begun an initiative, Making Tax Digital (MTD), with the prime purpose of modernising the tax system and simplifying tax reporting for businesses and self-employed individuals.
With HMRC’s Making Tax Digital (MTD) initiative, more taxpayers are required to store and submit records digitally. Self-employed individuals and VAT-registered businesses must now use HMRC-approved software for record-keeping and filing taxes online.
Consequently, they can maintain mandatory compliance with digital record-keeping and tax submission.
To learn more about MTD for the self-employed, read our guide: A Guide to Making Tax Digital (MTD) for the self-employed.
Get in touch with our young, clever, and tech-driven professionals if you want to choose the solution to tax burden or accounting problems in the UK for your income. We will ensure to offer the best services.
For Limited Companies
If you are running a limited company, you are obligated to keep certain records and provide them to HMRC if asked for, investigated, or for tax reasons.
These records include:
- Profit and loss accounts.
- Corporation Tax returns.
- Money that the company receives through invoices, contracts, sales books, and other relevant documents, including bank statements or correspondence.
- All the records that contain essential details of the company’s directors, shareholders, and secretaries.
- Results of any votes and resolutions passed by the shareholders.
- Any transactions of an individual purchasing shares in the business and becoming a shareholder.
- Loans or mortgages against the company’s assets
- Balance sheets.
- PAYE records for employees.
- VAT records (if applicable).
- Guarantees from the company to repay its loans by a specific date and to whom they must be paid directly.
- Information on the assets that the company owns.
- Debts that the company owes or is owed by others
- Goods or products sold or bought as part of trade.
- The financial records required to accurately complete and file your annual accounts and company tax return.
Furthermore, you must also keep the records of people with significant control (PSC) in the business. To go into detail, a limited company’s PSC register must contain anyone who:
- Has over 25% shares or voting rights in the company.
- Wields significant influence, control, and has a say in the company.
- Has the power to appoint or terminate a majority of directors in the company.
Visit the government website to find more about what a PSC register contains.
After elaborating on what records are crucial to retain, let’s expound on how long should you keep your tax records when running a limited company.
Essentially, limited companies must keep their financial and accounting records for at least 6 years from the end of the financial year or accounting period to which they relate or longer if:
- The company has undertaken a transaction that covers more than one accounting period.
- HMRC is conducting a probe or an investigation into the company’s finances.
- The company has purchased assets that have an expected long-term value.
It might be relevant to mention here that if you have kept any of the aforementioned records somewhere other than the registered office address that the Companies House knows of, like your own personal address or another office address, you must apprise the Companies House of that address.
If you want to learn more about a limited company and its corporation tax, our following guides can significantly elevate your information on a limited company.
How to set up a limited company?
What are the filing obligations for a limited company?
What is corporation tax and how it works for limited companies?
How to reduce corporation tax bill for a limited company?
Why is keeping tax records vital for self-employed workers?
In addition to knowing how long should you keep your tax records, you should also grasp the significance of retaining tax records:
Records serve as concrete evidence in HMRC audits and investigations:
HMRC has the authority to check your tax returns and accounts for the purpose of precision and accuracy. Therefore, if an audit occurs, your well-organized tax records can make the process smoother and prevent you from facing penalties for non-compliance.
Accurate records allow you to correct mistakes:
Consider a scenario where you realize you made an error on a previous tax return. However, there is nothing to stress over since having access to your records allows you to rectify or correct the mistake within the allowed amendment/correction period.
Records help you claim tax reliefs and expenses:
By retaining precise records of expenses and deductions, self-employed individuals and businesses can easily claim legitimate tax reliefs since HMRC requires evidence of claims, for which receipts and invoices are imperative.
Securing loans and mortgages:
Lenders and financial institutions often require tax records when assessing applications for business loans or personal mortgages. As a result, keeping detailed financial records can significantly bolster your chances of loan approvals.
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Conclusion:
In summary, learning how long should you keep your tax records is crucial since maintaining them for the appropriate time period ensures your compliance with HMRC regulations and financial stability.
Essentially, it is advised employees keep their records for at least 22 months, self-employed individuals for 5 years, and businesses for 6 years or more in some cases. Therefore, if you are seeking hassle-free tax management, appointing an experienced accountant can be considerably beneficial.
To this end, the registered and certified accountants at Accountingfirms can help self-employed individuals and business owners meet their HMRC obligations, such as from maintaining records to filing tax returns efficiently. Thus, get expert and detailed assistance with Accountingfirms today and stay on top of your tax responsibilities!
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.