Record Keeping

By | 2 June 2010

‘New HMRC powers’ is a phrase we have all become accustomed to hearing over the last few years. Among those powers is the facility for HMRC to make regulations specifying the records and supporting documents which must be kept, and the period for which they must be retained.

HMRC’s record keeping powers were introduced for income and corporation tax purposes in Finance Act 2008 (s 115, Sch 37), and apply with effect from 1 April 2009. They were extended (in FA 2009, s 98, Sch 50) to include various other taxes and duties, including stamp duty land tax. The legislation enables HMRC to make new regulations specifying which records must (and need not) be kept, including by way of a notice.

Existing requirements

For individuals carrying on a trade, profession or business alone or in partnership, specific record keeping requirements are already set out in TMA 1970, s 12B. For a company, there is broadly a requirement to keep records of receipts and expenses in respect of its activities, and records of sales and purchases for trades involving goods (FA 1998, Sch 18 para 21). In addition, company law has its own record keeping requirements (CA 2006, ss 386-389).

HMRC recently published a tax helpsheet ‘Keeping records for business – what you need to know’, which provides a useful summary of which records must and/or should be kept by businesses, as well as by employers and for CIS purposes: see (as to record keeping generally, see The helpsheet also outlines the existing time limits for keeping records, although there is to be a general alignment of time limits across the various taxes eventually.

Capital gains

There is a potential problem for capital gains purposes in terms of record keeping if assets have been held for a long time. HMRC’s Compliance Handbook (at CH14650) states that a person ‘…will need to keep and retain records that will enable them to make a correct and complete return of the capital gain or capital loss…’

This record keeping requirement, according to HMRC’s guidance, extends to ‘…records relating to the acquisition and improvement of a chargeable asset.’ This would indicate that taxpayers may need to keep records for many years, perhaps as far back as March 1982 (or possibly to 1965 for some disposals in earlier years).  

Of course, in practice records are often lost or destroyed, or may simply not be kept over so many years. Estimates would therefore need to be considered in those cases.

No document, no problem?

Documentation will often be needed to evidence events or transactions which have taken place. For example, HMRC may request company minutes of board meetings to establish decisions such as the voting of directors’ remuneration.

Interestingly, HMRC guidance appears to accept that board minutes will not necessarily be available. This follows a (non-tax) case Re Duomatic Ltd (1969 2 Chancery 365). The HMRC guidance states (albeit in the context of the Companies Act 1985) that if directors’ remuneration is approved by the company’s shareholders entitled to attend and vote at a general meeting, this has the same effect as a resolution passed by the company in a general meeting (EIM42300).

In re Duomatic Ltd, director shareholders of the company received remuneration, but no resolution was ever passed, and none of the directors had contracts of service. The company went into voluntary liquidation, and the liquidator sought (among other things) repayment of the directors remuneration. The court held that where it can be shown that all the shareholders with the right to attend and vote at a general meeting had assented to something which a general meeting could carry into effect, the assent was as binding as a resolution in general meeting.   

The Duomatic principle may be particularly helpful in the context of small family companies, where shareholder decisions are often not documented. Of course, for company law purposes it will still be necessary to ensure that any Companies Act 2006 requirements are satisfied.