Companies are required to maintain accounting records and all other supporting documents for six years from the end of the financial year they relate to, in order to evidence that a complete and correct return has been delivered. In situations where HMRC has opened an enquiry, records must be kept until the enquiry is concluded.

Where HMRC makes an enquiry into the return, the retained records should be such that it is sufficient to explain and substantiate the information disclosed in the company’s tax return. A penalty of up to GBP 3,000 may apply for failure to maintain adequate records.

Large companies with turnover exceeding GBP 200 million or having balance sheet assets of more than GBP 2 billion are required to certify on an annual basis that the accounting systems of the company meet the requirements to produce accurate tax reporting. Penalties are levied for careless or deliberate failure to meet these requirements.

For corporation tax purposes, the business records must be i) complete and up to date; ii) allow the taxpayer to work out the amount owned or can be reclaimed from HMRC; iii) allow the accurate filing of the tax return and iv) be accessible to HMRC in the event of an enquiry. These include: Record of the company’s assets, including capital expenditures such as the sale and purchase of the company’s assets, equipment, office furniture and vehicles;
Record of the company’s liabilities;
Record of the company’s income and expenditure; and
Details of any stock on hand at the end of the financial year.

In addition, HMRC recommends the retention of the following records:

Annual accounts, including your profit and loss statement and balance sheet ;
Bank statements and paying-in slips;
Cash book and any other account books;
Purchases and sales books or ledgers;
Invoices and any record of daily takings such as till rolls;
Order records and delivery notes;
Petty cash book; and
Other relevant business correspondence.

HMRC accepts records on optical imaging or other electronic data capture systems, insofar as these reproduce a complete record of the original document.

Companies are required to maintain specified accounting records under Section 386 of the Companies Act, which closely follows the tax requirements. Provided the Companies Act requirements are met, HMRC confirms that the tax requirements will be satisfied (although private companies must retain records for a longer period). However, companies affected by the transfer-pricing rules are required to keep additional documentation.

Similarly, partnerships are required to keep a record of all the partnerships sales and takings and a record of all the partnership’s purchases and expenses and records which are used to calculate the partnership’s business profit and each partner’s share of the profit which goes on the partnership return and the individual tax returns of the respective partners.

HMRC acknowledges that different businesses need different types of records, and provides a list of records which the partnership should consider retaining. This includes:

Cashbooks;
Payroll records;
Invoices and receipts;
Rent books;
Electronic sales records or till rolls;
Details of anything taken out of the business for personal use; and
An inventory of stock on hand.

HMRC has issued detailed guidance on the maintenance of records, which may be accessed here.

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