How Long Should You Keep Your Tax Returns?
How long do you need to keep your annual tax return?
The exact length of time that you should keep your tax returns depends on a variety of factors.
We are used to keeping important financial documents for a few years before disposing of them to make way for new documents. Whether it’s credit card bills, bank statements, or utility bills, you probably have a carefully ordered file box sitting on a shelf somewhere filling up with the last three years’ worth of hard copies.
But what about if you run a small business? Rules can be very different for companies.
Do you know how long should you keep all that paperwork? In particular, how long should you keep your annual tax return?
How long should individuals keep their tax returns?
For those of us who are just regular taxpayers employed PAYE, the rules are fairly simple.
1. If you submitted your tax return on or before the deadline, you should keep it for at least twenty-two months after the end of the tax year for which it was submitted.
2. If your tax return was sent after the deadline, you need to keep it for at least fifteen months after you sent it.
Business Tip: This doesn’t just apply to your tax return. Any records used to complete your tax return such as bank statements, receipts, invoices etc. should be kept for a similar period.
How long should self-employed keep tax returns?
If you’re self-employed as a business or sole trader, the rules are a little more complicated.
You have a legal requirement to keep good records, and HMRC can come calling any time to check that you’ve been paying the right amount of tax.
In order to ensure you’re best protected, holding onto your tax returns for five years beyond the 31st January submission deadline is the sensible option.
Why should you keep your tax returns?
It’s worth bearing in mind that HMRC have six years in which to approach you and investigate your past tax affairs, so being prepared for this will make everyone’s life easier.
If you haven’t kept your records correctly, you could be stung with a hefty fine.
It’s also worth knowing that if there are investigations into fraud or wilful default, there is no limit to the length of time over which HMRC can investigate.
Business Tip: Keeping good records makes business sense too. Having a few years’ record of performance can help you plan your business better and keep tabs on spending decisions.
What you should do if you've lost your records
Unfortunately, it does happen. Paperwork can be destroyed for a number of reasons. If the worst happens and HMRC come calling, what can you do?
You’ll need to explain the situation to HMRC and provide evidence where possible, such as insurance documents from a fire. You’ll also need to do estimates in order to meet their requirements. For this reason, it’s always a good idea to keep electronic records of as much as you can, as well as hard copies.
Business Tip: Save it onto a backup drive of some sort that’s stored at another location. This will allow you to quickly reproduce your records in event of disaster.
Whether you’re new to business or you’ve been around a while, the tax system seems to get more complicated every year so there’s no shame in anyone else asking for guidance.
If you need advice on your tax return, get in touch with our Tax team today on 08442 492 209 or contact them online.