Self Assessment introduced a legal requirement to maintain proper records of any transactions that may have tax consequences.

Most importantly, it is not only those in business that are affected - there are requirements for employees and, in fact, anyone with taxable income of any kind.

Failure to keep 'adequate' records and documents can lead to a fine of up to £3,000.

All individuals are required to keep documents relating to investments, such as bank statements for interest-bearing accounts, building society passbooks or statements and dividend counterfoils.

Paperwork relating to taxable state benefits must also be retained, including details of:

• Retirement pension

• Incapacity benefit

• Jobseeker’s allowance

• Bereavement allowance

Other documents such as Child Support Agency assessments and marriage certificates may be relevant for tax purposes and should also be preserved.

Employees (including company directors)

If you are an employee, further items and information you should keep include:

• Form P60 (the certificate of pay and tax deducted issued by the employer at the end of the tax year)

• Form P45 part 1A (issued by the employer when an employee changes jobs)

• Payslips (even though identical pay and tax information may also be shown on a form P60 or P45)

• Details of tips, gratuities or incidental receipts (the Inland Revenue have stated that this should be written up on a daily basis)

• Details of taxable benefits and expenses received (the employer must supply a copy of form P9D or P11D, where appropriate)

• Details of tax-allowable expenses incurred (supporting vouchers are required, e.g. credit card statements, phone accounts, restaurant bills, car park tickets etc)

• A log of business journeys by car (showing the date, purpose and mileage of each business journey, this applies to both company car drivers and those who use their private car on company business. The log need not include journeys to and from the normal place of work, which are treated as private motoring)

In certain circumstances, other records may also be required, for example share option rights awarded or exercised.

Self Employed (including partners)

The precise nature of books and records to be maintained will, to some extent, depend upon the type of business carried on and the scale of the operations. All traders, however, are now required to keep the following:

• Bank and/or building society statements for any accounts used for business purposes

• Copies of sales invoices and a day-by-day record of goods taken from stock for private use or services 'bartered' with other traders. Retailers and service business retailers (e.g. hairdressers) should keep till rolls or some alternative means of recording sales

• Invoices and receipts for all purchases. The original invoice or receipt must be retained, even after the relevant transaction has been written up in the trader's books. A detailed day-by-day record should be maintained of any expenses incurred where it is not possible to obtain a receipt (e.g. parking meter charges)

The Inland Revenue have stated that they will not accept rough-and-ready estimates of how telephone and motoring expenses should be split between business and private use.

It is therefore necessary to request itemised telephone bills and mark either all business calls or all private calls, whichever is easier.

Motor expenses should be dealt with by way of a detailed travel log, showing the date and purpose of each business journey. Mileometer readings should be recorded now, at the end of every accounting year, and every time a vehicle is bought or sold.

Keeping them for how long?

Everyone must retain their documents and records at least until the anniversary of the Tax Return filing date. For example, the tax year 2007/08 filing date is 31 January 2009, so all relevant material should be held until 31 January 2010.

The self-employed (including partners in business) and anyone receiving rent or other income from property must retain records for 5 years from the filing date, so for 2007/08 this means until at least 31 January 2014. Even longer retention periods can apply if a Tax Return is filed late or if there is a Revenue investigation. 

It should be noted that the self-employed and landlords must keep all their tax records for 5 years - not just those relating to their business or let property.

Please note: This guide is intended to provide basic information only. Where specific advice is required, we recommend that you seek proper professional help; either from this firm or other suitably qualified person or practice.