For how many years must we keep our payroll records?
Regulation 97 of the Income Tax (Pay As You Earn) Regulations 2003 requires "PAYE records", other than those that have to be sent to HMRC, for a period of three years following the tax year to which they relate. Put another way, employers must keep the current year's records, plus those for the previous three years.
What are PAYE records? They are defined as:
- all wages sheets, deductions working sheets, P46 forms for low-paid employees that were not sent to HMRC, and any other documents and records that relate to
- the calculation of employees' income for PAYE purposes,
- any other relevant payments to employees, and
- the deduction of tax from such payments, e.g. P45s, coding notices, and
- all documents and records relating to any information which an employer is required to provide on forms P11D and P9D.
These definitions refer to paper records but, where the information from paper records is retained on computer instead of on paper, e.g. the figures needed to complete year-end P14s, P46 details, P38(S) details, the employer must ensure that the computer records are kept in such a way that an HMRC officer would be able to inspect them.
Similar provisions are to be found in the Regulations relating to NICs, statutory payments, national minimum wage, payments to subcontractors, gains on share options and student loan deductions. The three-year retention period applies, therefore, to all records that are created solely for PAYE and related purposes.
An employer's PAYE records, including those of employers based abroad, must be available for inspection by HMRC at a location in the United Kingdom.
Employers that made payments of working tax credit to employees up to April 2006 should note that, after the responsibility for the payment of tax credits transferred in full to HMRC from that date, the three-year retention period continues to apply to the records of those payments.
However, some records that are relevant for PAYE and other payroll-related purposes are, strictly speaking, accounting records and, as a result, they must be retained for the periods defined for accounting records. Examples of such records would be expenses claims relating to business travel, business entertaining and staff entertaining. The Companies Act 2006, sections 386 to 389, requires public companies to keep accounting records for six years. This means, for corporation tax purposes, six years starting from the end of the company's accounting period.
Although the retention period for most payroll records is three years, most employers keep such records for six years, to match the general retention period for accounting records.
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