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Default HMRC Record Keeping Period Explained

hmrc record keeping 6 years

The default HMRC record-keeping period is the amount of time that HMRC will keep, or may want to refer to your own records relating to business tax and finances. This is 6 years from the last point of data entry on a record and after this point, HMRC can discard documents relating to the registered business. 

Both HMRC and any 3rd parties that work with it and its data must adhere to this record keeping timeframe or risk penalty under GDPR (general data protection regulations). The only exception would be a justifiable legitimate reason or consent having been granted for the data to remain on file. 

This article explains the reasons for the default HMRC record-keeping period in more detail including the benefits of the rule, and how you can see what data HMRC holds about you and your business.

What is the Default HMRC Record Keeping Period?

The default HMRC record-keeping period is the duration for which HMRC is allowed to retain business information after they have stopped making entries or operations. It is a maximum period of 6 years that counts from the last entry date of the business records. Once that time elapses, any record of the business is deleted the following year. That explains why some people refer to it as the 6+1 record-keeping time.

The reason for maintaining these business records is to ensure the availability of necessary documents if there is an investigation or inquiry about that business. For example, if there are issues with the tax returns, then HMRC can easily refer to the business records of interest to clarify the situation. Having these records helps HMRC to answer questions that might arise about any registered business.

After this time period, there must be a very good reason for HMRC to hold on to these records as they are then expected to delete them. The only exceptions are when it has legal, regulatory, statutory or security reasons to maintain the records beyond the default period. If any of these apply, they could hold the record for 20 years from the last entry, plus one more year.

Why is it Important?

There are certain benefits of the default HMRC record-keeping period. The most obvious one is the protection of important records that could be helpful to refer to during this time. By preserving business records for 6 years, any discrepancies or errors can be reviewed and corrected easily.

The following are additional reasons for the default HMRC record-keeping period:

  • Easy access to information: since HMRC keeps records electronically, it is easy to find essential business information compared to searching through large piles of paper records. The electronic record keeping is seamless and efficient.
  • Regulatory compliance: certain regulations require businesses to keep some records for a specified duration. Having HMRC keep copies of such records serves as a backup to those businesses and makes them compliant with the law.
  • Reduced risk of HMRC audit or investigation: By HMRC keeping records of business activities there is less chance of an audit or investigation being carried out into a business unless there are exceptional inconsistencies or mistakes in the data already held.
  • Reduced storage costs: businesses that have their records with HMRC do not need to bother about costs associated with the storage of some business information. The records with HMRC serve as quality backup.

Which Records does HMRC Keep?

Part of the objectives of HMRC is to support the government’s economic and social plans by collecting taxes and duties and administering related benefits and schemes to business owners.

The information preserved for the default HMRC record-keeping period covers the following areas that enable them to deliver against these objectives:

  • Individuals: personal information about taxpayers such as their contact details, employment history and tax affairs.
  • Companies: detailed information about the company’s structure and records concerning their financial sheets and employee details.
  • Trusts; information about trusts, and records of the beneficiaries and those in charge.
  • Charities: information about charities, their financial records and every employee they have.

There are different reasons why HMRC monitors and preserves business information. The basic objective is to comply with the law that certain records must be preserved for a minimum of 6 years.

Examples of such records include:

  • Accounts and audit reports
  • Tax returns
  • VAT returns
  • Payroll records
  • Records of assets and liabilities

How Does HMRC Manage Its Data? 

There are lots of teams at HMRC, but the ones that are key to its data management are:

  1. The Records Management Team: this team is responsible for the day-to-day records management and how to continually develop and implement record-keeping policies and procedures. This unit is tasked with ensuring that business records are organised in a consistent and standard format.
  2. The Information Management Team: refers to the unit responsible for managing the flow of information across HMRC. They actively contribute to the development and implementation of information management policies and procedures, and how to train staff on handling information effectively.
  3. The Audit and Compliance Team: this unit audits every record and information that comes into the HMRC register. They have to ensure full compliance of HMRC with government laws and regulations.
  4. The Data Protection Team: they ensure that there is full compliance with the Data Protection Act. That includes making sure the personal data of registered businesses are safe, secure and easily accessible.
  5. The Appraisal and Disposal Team: refers to the team responsible for observing the default HMRC record-keeping period and destroying information that is no longer needed. They ensure that every appraisal and disposal of records follows HMRC’s retention policy.

What is HMRC’s Policy for Records and Information Management?

HMRC’s policy for records and information management is about its commitment to statutory regulations on essential data protection acts, and the appraisal and disposal of records.

The policy covers how HMRC collects and preserves business records for the default record-keeping period. It further dictates the procedure for disposing of records after the default period or when they are no longer needed.

The general concept is maintaining important records as a backup of business information for as long as they remain valuable according to the law.

What is HMRC’s Retention Policy?

HMRC’s Retention Policy explains the expected duration to keep records of registered businesses. The policy is premised on the principles of “proportionality” that records and information should only be kept for as long as they are needed. It explains how to determine when to keep records for business purposes and when to destroy such records.

The common record retention practice is that business data with HMRC should be destroyed after exceeding the default record-keeping period. Records can also be disposed of if they contain sensitive or personal information that must be protected.

What are the Personal Data Retention Requirements?

The Data Protection Act regulates HMRC on the retention of personal data of self-employed individuals or businesses. It controls how HMRC protects the records and information of people while ensuring they are accurate and updated. That also involves destroying such information when they are no longer needed or have exceeded the default HMRC record-keeping period.

Besides, some records are sensitive and can be used for identity theft if they get into the wrong hands. HMRC must properly safeguard the privacy of business data in its system.

What are Appraisal Reports?

Appraisal reports are documents that help to determine the value of an organisation’s records and information and whether they should be kept or destroyed.

The final decision based on an appraisal report will depend on factors like the age of the records, their content, formatting style, and the legal requirements for retaining such information. The outcome of the evaluation will help the decision to keep or destroy the records depending on their perceived value, sensitivity and relevance.

What are Audits and Compliance?

Audits and compliance regulations are important to ensure that HMRC complies with the best practices for managing personal records and information. They are measures to protect the public rights to privacy of their personal data by regulating the activities of HMRC.

Independent bodies like the National Archives are in charge of conducting these audits and compliance checks for HMRC. It is a system in place to ensure every party involved operates within the constraints of data and privacy laws.

HMRC oversees the tax returns of business owners or self-employed while independent bodies audit their legal compliance levels to improve transparency. It is an effective strategy to hold HMRC accountable for its record and information keeping processes.

Some of the audits would include how HMRC ensures data privacy and its compliance with the default record-keeping period. There is also a need to confirm how HMRC gets rid of business information when it is no longer needed.

Which Documents and Records Should Businesses Keep Themselves?

You can check out HMRC guidelines for the type of records and information that is mandatory for businesses to keep. There are also laws guiding how long the business should preserve such data in its database and the procedures to destroy them when they are no longer needed.

Examples of such information are financial records like invoices and bank statements. Organisations must also keep employment records such as contracts of employment and PAYE information.

Some other recommended records and information by HMRC include customer lists and records of sales and purchases. Aside from keeping records for compliance purposes, businesses can use these records to track customer purchases and understand their spending habits.

Every serious business should have an organised database for customer records and information. We suggest having an electronic record-keeping system for easy reference and tracing of customer data. You can also use paper forms but understand it is more stressful to manage.

Check out the HMRC website for guidance on how to store records and tips to keep them secured. Their website also contains a policy on how to destroy business records you don’t need again. The policy discusses what type of records to destroy and procedures to discard such records without risks of getting into the wrong hands.

Lastly, do not hesitate to contact a professional accountant for business advice if you get stuck on what to do with company records and information.

Who can Request Business Records from HMRC?

According to the Freedom of Information Act, anyone can request business records with proof of “legitimate interest”. The term “anyone” refers to other businesses, individuals, solicitors, and other organisations. However, the request must be made in writing and must include their genuine reasons. The request passes through HMRC and is approved if they consider the reasons legitimate.

The following are why HMRC might make a business record publicly available upon request.

  • To ensure transparency and accountability: providing business records to the interested members of the public improves transparency of the business and HMRC dealings. Everyone gets to see how HMRC operates and its compliance with regulations.
  • Evidence in legal proceedings: there are instances where a business dispute before a court might require records from HMRC to solve the case. It could be an investigation into HMRC activities or a defence against accusations from a business owner.
  • To make better decisions: access to business records and information can make the management make data-oriented decisions for the company. The business can also use the provided records to understand its customer or supplier behaviours.
  • Improve tax compliance: accessibility to business records can ease the burden on HMRC in tracking companies or individuals that do not pay the right amount of tax. It also helps these business owners to better understand the tax system and reduce the chances of errors.
  • Research purposes: research and investigations into the number of businesses paying correct tax amounts might be a reason to grant public access to some business records. There are situations where investigative journalists, academics and concerned citizens can check these records to uncover instances of fraud and corruption.

Final Thoughts

The default HMRC record-keeping period of 6 years is an essential policy regulating business information management. While there are many benefits of these policies such as serving as backup data for businesses, it is important to also enforce data privacy laws and encourage independent audits and compliance organisations to ensure HMRC protects the personal information on its register.

There are several other policies on how long HMRC should preserve business records and the procedures for discarding them when appropriate. In some cases, the public can also request to access these business records provided they have legitimate reasons. Altogether, businesses and HMRC must comply with statutory obligations to keep sensitive information safe.

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