Compliance Checks: Record Keeping - Schedule 37 FA2008
General Position – the current regime
The obligations to keep and preserve records across a variety of taxes are, generally, not prescriptive.
The common characteristic is that a taxpayer must keep such records as are required to enable it to deliver a complete and correct return. It also has to preserve the records in accordance with statutory time periods.
This generic requirement is usually supplemented by some specifics. The current record keeping arrangements for corporation tax, for example, at para 21 of Schedule 18 FA1998 specifies as follows:
"21(1) A company which may be required to deliver a company tax return for any period must:–
(a) keep such records as may be needed to enable it to deliver a correct and complete return for the period,
(b) preserve those records in accordance with this paragraph
(2) ...
(2A) ...
(3) ...
(4) ...
(5)the records required to be kept and preserved under this paragraph include records of –
(a) all receipts and expenses in the course of the company's activities and the matters in respect of which the receipts and expenses arise, and
(b) in the case of a trade involving dealing in goods, all sales and purchases made in the course of the trade"
And for SDLT, para 9 of Schedule 10 FA2003 provides
"9(1) – a purchaser who is required to deliver a land transaction return must:-
(a) keep such records as may be needed to enable him to deliver a correct and complete return, and
(b) preserve those records in accordance with this paragraph. Para
(2) ...
(2A) ...
(3) The records required to be kept and preserved under this paragraph include:-
(a) relevant instruments relating to the transaction, in particular, any contract or conveyance, and any supporting maps, plans or similar documents;
(b) records of relevant payments, receipts and financial arrangements".
However, for certain taxes (most notably VAT and PAYE) there are more prescriptive obligations to keep specified information as part of the records.
Proposed changes
The fundamental principles behind these record keeping obligations are not being changed by Schedule 37 FA2008. What is happening, however, is that (in my view sensibly) the record keeping requirements for most taxes are being aligned.
So no changes to the main obligations to keep records sufficient to complete an accurate return, but HMRC are making changes to allow them to make regulations to specify records and supporting documents that must or that need not be kept.
These regulations may also reduce the period for which records must be kept in individual cases, and specify conditions in exemptions to the general rule, but information instead of records may be preserved.
Penalties for failing to keep records etc.
There will be no change either to the general regime of penalties which can be raised for failing to keep statutory records.
There are three penalty impacts on failing to keep these records.
(a) Firstly, there can be a penalty for that failure.
(b) Secondly, there can be a penalty for failure to produce documents or provide information (either on request or pursuant to information notices) to HMRC.
(c) Finally, incomplete records are likely to generate an allegation of carelessness if an inaccurate return is submitted, with the consequence of a tax geared penalty.
Implications of statutory records
At paragraph 62 of Schedule 36 FA2008, statutory records are defined as
"information or a document which the person is required to keep and preserve under or by virtue of paragraph:
(a) the Taxes Acts, or
(b) any other enactment relating to a tax.
Subject to the following provisions of this paragraph".
The significance of information or documents comprising statutory records is that a taxpayer's rights to appeal to the FTT against information notices is considerably reduced where the notice relates to statutory records.
So, for example, unless the FTT has given prior approval to the issue of a taxpayer notice, a taxpayer can generally appeal to the FTT against it. However, this is not the case if the notice requires production of statutory records (see paras 29 and 34 of Schedule 36 FA2008).