How Long Should I Keep VAT and Business Records?

martindow

My piles of business invoices and records are getting enormous going back to 1997. Can I safely get rid of masses of invoices, etc. after six or seven years? I could make very good use of the space freed up if I just kept brief summaries of sales and expenditure.

Does the statute of limitations apply or could there be possible problems if VAT or income tax people come to check up on what was going on in the distant past and I have no paperwork?

linlin_3

Six years unless fraud is suspected, then its unlimited.

martindow

Thanks - I have just been Googling and found this page

http://www.nationaldebtline.co.uk/england_wales/factsheet.php?page=25_liability_for_debts_and_the_limitation_act

This says

There is no limitation period on debts to the Crown. You can always be pursued for tax and VAT.


But surely we can't be expected to keep full paperwork records indefinitely?

JasonLVC

Good accounting practice recommends 6 years worth of records.

For VAT, 6 years of records is a maximum. If you had an inspetion for VAT, HMRC can only review the last 4 years worth of records (from April 2010 this year), beyond that they cannot review or raise assessment unless they can prove systematic fraud.

So unless you have been upto something dodgy, off-shore trusts, cash in hand payments, skimming the till, etc then you have nothing to worry about and just keep the last 6 years.

To prove fraud HMRC would have to demonstrate you living beyond your means and that your filed tax returns or company returns have been falsified, so a company that turnsover say £100k a year and yet you sa a Director has 3 houses, 5 cars and lots of bling....a bit of a give away.

Darksun

As an alternative you could perhaps scan and store old records digitally, which solves the space issues. Of course, this could take up a significant amount of your time so you'll have to decide if it's worth it

Also remember to dispose of all your old records securely

Pennywise

Don't get rid of all old records just because the 6/7 year period has ended. You may still need some of them in the future for other purposes. I always recommend a policy of "weeding out" rather than automatic destruction.

By all means, go through them and destroy (shred or incinerate) the 80% or so which will be irrelevant, i.e. phone, postage, stationery bills etc., but I'd strongly suggest that you keep things like bank statements, credit card statements, unusual or big bills, etc. virtually forever - this will normally amount to only 20% of the bulk, so you'll be able to seriously downsize the amount of papers kept and the space they take. As for sales invoices, again, think about weeding rather than destroying - by all means scrap the small and routine stuff, but again, anything unusual or large would be worthwhile keeping.

Basically, if, say, you've got five boxes/files of paperwork for each old year, then work on keeping just one box/file of the most important and scrap the other 4.

Of course, you need to keep anything relating to investments that you still have, i.e. properties (even your home), business goodwill, vehicles, plant & equipment, etc., as this may come in handy when you come to sell (for tax purposes) or if things go wrong - you never know when the original paperwork can come in handy.

Paperwork isn't just kept for the benefit of the taxman, it's for your benefit too, so apply a little common sense and scrap the majority of the rubbish but make sure you keep the unusual/large/still relevant kind of thing.

paulwf

That's a good point Pennywise, I remember an insurance company wanting the original invoices for equipment damaged in a break in, some of which was over 6 years old.

Pennywise

paulwf wrote: »

That's a good point Pennywise, I remember an insurance company wanting the original invoices for equipment damaged in a break in, some of which was over 6 years old.

I've had a couple of bad CGT cases where this point was brought home.

The worst was someone who bought their own home and spent a lot of money doing it up (extension, loft conversion, central heating, landscaped garden, new kitchens and bathrooms etc) - the paperwork wasn't even "business" so was soon destroyed. Then they rented it out for several years then sold it. The capital gain was horrific as they bought at the bottom and sold at the top of the market. We could only guess at the amount of money spent on doing it up and managed to get the CGT down, but the inspector wasn't having any of it and after a very long drawn out enquiry and negotiations, we had to settle and far more tax was paid than necessary, all because they couldn't prove what work had been done and how much it had cost - they'd simply forgotten and couldn't even remember who'd done the various works so every way we tried to reconstruct was a dead end.

I now tell clients to keep "the big stuff" relating to property and business for 6/7 years after the property/business is sold, not from the date of the purchase. It's a policy that's worked very well and paying dividends as it makes the CGT calculations much easier and we have the proof to defend the figures when the tax man calls.

On a personal level, keeping household bills (for electrical items etc) for a few years (not required by tax laws) has also paid dividends. Even though standard manufacturers warranty is just a year, they remain liable for inherent faults or unmerchantable quality virtually indefinitely, so if something goes wrong that is a manufacturing fault, they are liable to replace or refund for years to come. I've had a few "freebie" replacements after 2 or 3 years because I've kept the paperwork.