Tips to beating an HMRC tax investigation. 

Business Tax Records


Whether it’s a pristine colour-coded filing system or a cluttered bunch of notes on your desk – if you’re running a business, you’re going to need to keep your business records somewhere.

Whether it’s supply costs, HR materials, or information about your finances, you’ll never know when that information will come in handy. And when it comes to your tax returns or an upcoming HMRC tax investigation?

As we always say: it pays to be prepared.

But how do you cut the wheat from the chaff? How do you know which records are going to be the most important, whether you’re in the middle of an HMRC investigation or preparing for all eventualities in the future?

Don’t sweat. Because today, we’ve got you covered.

Here’s our top tips on what records to keep for an HMRC tax investigation.

Before we start – if you’re still questioning what to do during an HMRC enquiry or investigation? Don’t panic – just check out our previous post. And remember, we’re here to help. So get in touch.

But back to the topic at hand: records.

Now, it goes without saying that, really speaking, the only information you’re going to need to stay afloat during a tax investigation or enquiry is any kind of record applicable to your tax returns.

That mind sound obvious, of course. But let’s break that down for a second, shall we? Because what do we mean by ‘applicable’?

Well, here’s the simple version: you’ll need to keep details of any money received or spent with the business, including receipts.

And if you’re dealing in retail or dealing with any kind of sold goods? You’re going to want to keep information of all the sales and purchases, too.

‘So far so obvious,’ you might be thinking. ‘But do I have to keep everything?’

Our advice? In an ideal world, yes. But there’s a caveat. Keep as much information as possible, but in terms of tax returns? You only really need to keep what’s pertinent to you and your employee’s tax and income.

Because any other information that doesn’t pertain to your tax return? It’s not for your HMRC officer to worry about. Phew!

Here’s an example, to make things clearer. Say you run a cash-based business. You’ll probably want to keep your till rolls and receipts. But if you’ve evidence that you’ve meticulously transcribed the information over to a filing system or book? You’re going to be just fine.

And those ten-year-old clock in cards from that one employee who’s always late?

Even if they’re cluttering up your desk’s drawers, if your HMRC officer comments on them, be polite and firm, guiding them back to the real topic at hand: tax. Because those clock in cards?

None of HMRC’s business.

Of course, the above situation is a light-hearted take. But it has a point: because whatever information you deem necessary to keep – even seemingly useless information? Keep it!

The important thing is to retain records that you understand records that you can manage. And if you’re on top of what you need to retain and what can be dispensed with, it’ll make you’re filing and records easier to control. And filing that’s a doddle to organise?

You’re much more likely to keep it in order!

Of course, whatever records you keep, what will and won’t be deemed necessary information during your HMRC investigation or enquiry will be up to your HMRC officer. But seeing as HMRC enquiries are all about establishing facts, you’re going to want as much evidence as possible so you can eventually demonstrate that your tax returns are one-hundred percent legitimate.

And if you find a mistake in your records, or you’re still unsure what records to keep? Speak out. Ask us for advice. Ask us.

But how long should I keep my business records for?

This, arguably, is one of the most important points we have for you today. Because if you’ve been keeping the above informational records well-organised and easily accessible? That’s a very big gold star you deserve right there.

But if you’re thinking of clearing out your office after keeping this information for only a year or so?

Think twice.

All the above information? You need to keep it for six years.

If you really want to get into the details of it, HMRC will tell you that you need to keep these records until the fifth anniversary of the 31st of January following the end of a tax year or the close of an HMRC enquiry. Or, in the case of a company, the records must be retained for six years after the end of the accounting period. Or, once again, the close of an HMRC enquiry.

But, really? You don’t need to worry about all that. Just focus on keeping your records safe for six years, and you’ll be golden.

And buying a new filing cabinet for more storage space? A lot less painful than enduring an HMRC investigation. Trust us.

What about PAYE?

It’s a good question, and thankfully, HMRC are pretty clear on this: for PAYE, employers must keep specified records. From VAT information to corporation tax, and pretty much everything between, in fact – all you need to know is that you should be keeping it all to hand and keeping it in order.

Because, ultimately, HMRC want to see adequate business and accounting records.

This doesn’t mean over the top notes and details, of course. But think of it like this: you’ve a duty to your employees, right? So if an employee asks for some information off you regarding their payslips from a year or two prior, they deserve to have access to it. It’s a reasonable request.

And once again, that’s what HMRC want to see when it comes to PAYE: reasonable, adequate records.

But what happens if I don’t keep adequate records?

We hate to be doom and gloom about this – so, in short, we won’t. But if you’ve found yourself lacking necessary records during your tax investigation or enquiry? Please – speak to us.

Still, it’s wise that you know the truth: penalties will be dished out if you don’t keep appropriate records. And if HMRC ask for these non-existent records, they will find out. So keep on top. Keep organised. And if you’re struggling? Don’t sweat. We’re here for you.

So what can we take away from this if you’re facing a tax investigation?

As we always say, it pays to be prepared.

There’s no two ways about it: you need to keep adequate tax-related records for your business.

Because If you don’t? HMRC will find out.

Ultimately, though, the other records that you keep? They are up to you, as long you stick to the statutory necessities. And it’s up to you how you keep it, too. Still, remember to keep any information regarding your income, your business expenditure and profit for six years, and you’ll be okay.

Any other records – things like HR materials or non-tax-related documents? These aren’t HMRC’s business. Even if they comment on them, they can’t do anything about it. So don’t sweat the small stuff.

Nevertheless, if you’ve found yourself without the necessary information? It’s best to come clean and talk about it. Talk to us for advice.

We hope that helps you figure out which records you do and don’t need to keep for your business. And we hope that for the sake of ease, you’ve already got a system in place, with all the necessary records kept safe.

But if not? Don’t panic.

Get in touch. Because we’ll give you peace of mind.

The Tax Haven

For your free consultation, call us on 0800 133 7596

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