What to do when you lose your tax records

Woman business owner searching for tax records in files and paperwork

Unforeseen circumstances - such as a fire or flood in your premises - could mean you lose your tax and accounting records. Simon Wicks finds out what to do if you lose financial records and what help you can expect from HMRC

"It's a statutory obligation for you to keep financial records and file an accurate tax return," says Russell Cockburn, former tax inspector and now head of tax at Lamont Pridmore.

In the wake of the 2011 riots, for example, HMRC started a helpline for businesses concerned about their tax return or meeting scheduled payments.

If you lose your records as a result of something like riots or floods it would probably be accepted as a 'reasonable excuse' and HMRC is likely to be lenient.

"HMRC will expect you to make a 'reasonable effort' to complete an accurate return - and there's a difference between losing records through circumstances beyond your control and losing records through shoddy filing," stresses Cockburn.

Contact HMRC early if you need help with taxes

Penalties for filing inaccurate or incomplete return, or not filing at all, can be harsh. HMRC will use your previous accounts to estimate your likely profits and could fine you up to 100% of the tax on this sum.

However, such a 'discovery assessment' is avoidable, says Cockburn if you contact HMRC: "Speak to HMRC as soon as possible. If you're approaching your tax assessment deadline, for example, they may well give you more time. They want to see that you've made the effort to compile a fair and accurate return. If you ignore it, it's not going to go away - at the end of the year, you still have to do a tax return.

"Speak to your accountant or tax agent. Most accountants are trained to compile returns with incomplete records and they can help you reconstruct them."

Reconstructing lost tax records

"You can track payments through bank accounts - having a business account makes it easier," Cockburn points out. "You can ask suppliers for their records to recreate your purchases.

"If you've claimed loss of property insurance, you can probably use your insurance company's assessment as evidence, for example."

HMRC will accept a reasonable estimate provided you've forewarned them. They'll also allow you to amend an on-time return for up to a year after filing.

Back up your accounts online

Cockburn points out that many problems associated with lost tax records can be prevented by backing up accounts with a cloud-based service. Your accountant will be able to access your records, too, which makes compiling a return simpler.

Company tax returns must now be filed online via the HMRC website and you must also supply an electronic record of your accounts. Your accountant can do this for you.

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