Self assessment support – record keeping, estimates and valuations
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; and
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 here.
Where a practitioner is holding records for a client these should be returned to the client. You will find retention clauses in Engagement Letters and advice in the rights of access factsheet. The taxpayer will need to retain the appropriate records.
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. This is further explored below.
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.
VAT registered businesses with a taxable turnover of more than £85,000 must follow the rules for ‘Making Tax Digital for VAT’ by keeping some records digitally. Further guidance can be found here.
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.
Capital gains and 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 themselves, 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 CG 34.
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.