We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
As the self-assessment tax return deadline is approaching, taxpayers should be reminded that they are required to keep any records and documents that they have used on completing entries in their self-assessment return.
Retention period
Periods for retaining records and documents are as follows:
For individuals, trustees and partnerships:
- with trading or rental income, five years and 10 months after the end of the tax year
- otherwise, 22 months after the end of the tax year.
For companies, LLPs and other corporate entities:
- six years from the end of the accounting period.
A longer retention period is required if the tax return was filed late or if HMRC has started a check of a return, or if a taxpayer is buying and selling assets. For more information, please see HMRC guidance.
Most of these records will be from the tax year or accounting period to which they relate, or soon afterwards. However, taxpayers will sometimes need to refer to records that are already several years old. For example, if a taxpayer disposes of an asset (such as land, shares or a valuable chattel, for instance a painting) that they have owned for a long time, they may need to have older records to calculate a capital gain or loss.
What happens if a taxpayer doesn’t keep adequate records
If HMRC checks a tax return for any reason and the taxpayer is unable to show the records that they used to complete the return, they may have to pay a penalty.
If records are kept on computer
The records can be kept on a computer or a storage device such as CD-ROM, USB memory stick or a network drive. There is no need to keep the original paper records as long as the method used captures all the information (front and back) on the document and allows the information to be presented in a readable format, if requested.
What a taxpayer should do if their records are lost or destroyed
If the records are lost or destroyed and cannot be replaced, the taxpayer should tell HMRC what has happened and do their best to recreate them. Taxpayers should tell HMRC if they have used any provisional figures in completing their tax return.
A penalty up to £3,000 may be charged for each failure to keep or to preserve adequate records in respect of a return or in respect of a claim made other than in a return. For this purpose there can be only one failure for each return or for each claim. These penalties can be set at less than the maximum in accordance with TMA 70/S100(1) and are subject to the normal appeal rights.
Provisional or estimated figures
HMRC makes a distinction between:
- a provisional figure, which is one that the taxpayer has supplied pending the submission of the final / accurate figure. If a provisional figure is used, the taxpayer is required to tick box 20 of the ‘Finishing your Tax Return’ section of the tax return (page TR 6, or equivalent in a return for an earlier year)
- an estimated figure, which is one that the taxpayer wishes to be accepted as the final figure because it is not possible to provide an accurate figure. This might be the case where the records have been lost. If an estimated figure is used, the taxpayer is not required to tick box 20 of the ‘Finishing your Tax Return’ section of the tax return.
Provided that provisional figures are reasonable and take account of all the information which is available, they are acceptable in cases where waiting for information to be available means that the tax return would otherwise be late.
HMRC expects that final figures will be provided once they become available and will take appropriate action to obtain these (ie via an enquiry).
Please note that HMRC states in its manual: ‘where it appears that a particular agent is filing a significant proportion of returns with provisional or estimated figures, you should inform the compliance manager’.
If a taxpayer has capital gains or claims capital losses
The records that a taxpayer should keep will depend on their circumstances, but some examples of what it would be useful to keep are:
- contracts for the purchase or sale, lease or exchange of the taxpayer’s assets
- any documentation the taxpayer has describing assets they acquired but did not buy themself, for example, assets received as a gift or from an inheritance
- details of any assets the taxpayer has given away or put into a trust
- copies of any valuations taken into account in the calculation of gains or losses
- bills, invoices or other evidence of payment records such as bank statements and cheque stubs for costs claimed for the purchase, improvement or sale of assets.
It would also be sensible for the taxpayer to keep correspondence with purchasers or vendors leading up to the buying or selling of assets. The taxpayer might want to use an asset, such as their home, for both business and private purposes, or may let out all or part of it at some time. If so, the taxpayer will need to keep sufficient records to work out what proportion of any gain they make is potentially taxable when they dispose of the asset.
Post-transaction valuation checks for capital gains-CG34 form
HMRC provides a service to allow individuals, trustees and companies to have valuations for capital gains purposes checked after the transaction has taken place but before the relevant return is submitted. This can be done by completing ‘post transaction valuation checks’ form CG34.
All types of asset may be included in the service, for example land, quoted or unquoted shares or chattels. There is no charge to customers for the service.
A request for a post transaction valuation check can be made at any time after the transaction has taken place but before the return is filed. Requests for pre-transaction valuation checks cannot be accepted.
HMRC has undertaken to check valuations, either to agree the valuation put forward or to provide an alternative that they can accept. If necessary, HMRC valuers will enter into negotiations to reach agreement to a valuation. But customers must put forward a valuation to be checked: the service is not to be used by customers to obtain valuations on request.
If a valuation has been agreed, HMRC is bound by it unless there are any material issues that were not brought to their attention that affected the basis on which the agreement has been reached.
Please note that the agreement does not bind the customer in using that valuation. In rare cases, if the taxpayer discovers that a relevant fact has been overlooked or feels on reflection that the agreement was inappropriate, they do not have to use the agreed valuation on the return. However, HMRC would expect a note drawing attention to the change of view.
Costs of negotiation
The costs reasonably incurred by a customer in making any valuation or apportionment submitted for a post transaction valuation check are allowable deductions. However, any costs incurred in actually making the submission or in furthering subsequent negotiations are not deductible in computing the gain or loss on the relevant disposal.