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Keeping accounting records for tax investigations

A recently qualified GP came to see me last week and since she has now started working as a self employed locum, she wanted to know how her tax was dealt with.

We went through the usual payment dates, the best way to record income and expenses, and then she asked a relatively straightforward question: how long should she keep her accounting records?

Six years, I hear you all shout. Well, that should mostly do it, the HMRC website mentions a minimum period. You can see more about this on the HM Revenue & Customs website's section: Keeping records - a quick guide.

So, should you now keep your records for longer? There are three issues that make me think you might:

* Firstly, you may remember the HMRC offered a tax amnesty for doctors called the tax health plan. It has expired now, but the basic idea was you had to declare all your unpaid tax going back 20 years. How could you prove you had complied with this without the records?

* Secondly, a doctor and client of mine was being investigated and HMRC wanted to go back 20 years in their tax investigation. Six years is the normal limit unless they can prove neglect or fraud. The inspector argued that since my client was a doctor, his high intellect meant that he must have known his car expenses were excessive, and therefore he must be negligent. Fortunately the highly intelligent tax inspector admitted to knowing little about medicine and he dropped the point but it does tell you what they are thinking.

* Thirdly, there is no doubt that HMRC are targeting GPs. Just last week two clients received investigation notices. Five years ago we would have maybe just one per year.

If anyone has had the misfortune to have endured a tax investigation, it can best be characterised as being treated as guilty unless you can prove your innocence. Another client of mine currently under investigation has been asked to prove the source of her cash. This has been quite easy to do, her husband draws money out of the cash machine weekly, and she has tenants renting rooms in her home paying cash. Her records are not that great, and despite the legitimate explanations, the inspector does not want to accept the explanations and is trying to assess her on deemed cash earnings.  Better records would have helped her and so we have a battle to fight.

I think I would hold off those bonfires or trips to the dump for a couple of years.

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