Page 7 Chapter 1

CHAPTER 1
Accounting Roles and Transactions

year, some documentation from the beginning of the year will need to be kept, which in
effect will make it seven years.

The Companies Act 2006 states that private limited companies must keep similar records
for three years.

The Finance Act 1997 amended the requirement in the Value Added Tax Act 1994 so
that accounting records for VAT should be kept for six years.

The Income Tax (Pay As You Earn) Regulations 2003 states that employers must keep
payroll records for not less than three years.

The Limitations Act 1980 requires that any action for a contract or fraud expires after six
years. However, documents may be required for longer if such action is taken within the six
years.

The Taxes Management Act 1970 says that an assessment for tax can be made up to six
years after the end of the period to which it relates, but personal tax documents need only
be kept for 1 year and 10 months.

The Data Protection Act states that personal data processed for any purpose or purposes
shall not be kept for longer than is necessary for that purpose or those purposes.

Other legislation requires certain documents to be retained for between 1 year and
permanently.

So you can see that the legislation is confusing. If documents
were never destroyed the business would accumulate a large
amount of paperwork taking up space which could best be
used for other purposes. It is therefore essential that the
business has a policy on document retention. For most
accounting documents this is often 6 years after the end of
the period to which it relates. In most cases this will be
sufficient to cover all possible claims made by employees,
HMRC or customers. If documents are not available when they should be a fine will be
imposed.

Once the retention period has elapsed the paperwork should not be simply thrown away in
the general waste. It contains confidential information even though the information is old.
The documents should be shredded or disposed of in a similar way so that private
information does not find its way into the public domain.

In the next chapters we will look at some of the documents associated with financial
transactions.

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