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Business Records and HMRC Scrutiny
Maintaining proper records is essential not just for good business but also to meet legal requirements. HMRC conducts records checks to verify compliance with tax obligations, particularly under PAYE. However, what if a business believes the requested information isn’t legally necessary? A recent tribunal case sheds light on this issue.
The Background: A Routine Check Becomes a Legal Challenge
In March 2023, a UK business was selected by HMRC for a business records check covering one year. The business initially provided documentation, but HMRC followed up with further requests. The company pushed back, arguing that some of the information requested didn’t qualify as “statutory records”—that is, records that a business is legally obliged to keep.
Rather than comply, the company appealed, seeking to challenge HMRC’s right to demand certain documents. This led to a hearing before the First-tier Tax Tribunal.
The Argument: What Is a Statutory Record?
The business claimed that some of the documents HMRC wanted weren’t legally required and were, therefore, beyond the scope of a statutory request. However, the Tribunal disagreed.
It found that the requested documents—such as those needed to verify payroll calculations and employee benefits—were clearly connected to the business’s obligations under PAYE. These included:
- PAYE income records
- Calculations for tax deductions
- Details for reporting employee benefits (like on P11Ds)
Even if certain documents didn’t directly relate to PAYE, they were still needed to prepare other required filings, like corporation tax returns. That still made them statutory records in the eyes of the Tribunal.
The Ruling: No Right to Appeal
Because the documents in question were considered statutory records, the Tribunal ruled that the business had no right to appeal the information notice. The law states that businesses cannot challenge a request for documents they are already required to keep.
The Tribunal also noted that the business had failed to provide clear reasoning for excluding the documents from the notice, further weakening its case.
What This Means for Employers
This decision serves as a powerful reminder to UK businesses—especially employers—that:
- Statutory Records Go Beyond Just Payroll Slips
- Records for fuel cards, benefits, director loans, and other business-related transactions can all fall under HMRC’s scope.
- Documentation Must Be Maintained
- Whether it’s needed for PAYE or corporation tax filings, if it relates to how a company handles employee compensation or business income, it should be kept.
- Failure to Comply Carries Consequences
- Ignoring or appealing against a valid request can lead to penalties or a formal order to comply, as was the outcome in this case.
- Appeals Have Limits
- If HMRC is requesting statutory records, there is no legal right to appeal the notice. Businesses must comply within the given timeframe.
Practical Steps for Businesses
To stay compliant and avoid disputes with HMRC:
- Review your record-keeping systems regularly to ensure all statutory records are retained for at least the required time period.
- Ensure PAYE processes are thorough and that all documentation—benefits, reimbursements, and deductions—can be easily retrieved.
- Respond promptly to any HMRC request and seek professional advice if you’re unsure whether something is required.
- Document everything, especially when dealing with HMRC. Even if you dispute a claim, your response should be reasoned, specific, and well-supported.
Preparation Is the Best Defence
This case shows that HMRC has strong powers to ensure businesses meet their tax responsibilities. If your company is asked to provide records, particularly those tied to PAYE or corporation tax, refusing to do so can lead to more trouble than it’s worth.
By ensuring that your business maintains the right records and understands what HMRC can legally request, you’ll avoid unnecessary disputes and protect your business from compliance risks.
Need Help Responding to HMRC or Improving Your Records?
At Tax Accountant, we help businesses stay audit-ready and compliant. Whether it’s PAYE, VAT, or corporation tax, our advisors can support you with record-keeping, submissions, and HMRC interactions. Book your consultation today and stay one step ahead of the rules.