How long do you really need to keep payroll records?
Three years’ worth
When requested by the Taxman, Regulation 97 of the Income Tax (Pay As You Earn) Regulations 2003 requires employers to keep their “PAYE records”, other than those that have already been sent, e.g. the P35, for a period of not less than three years following the tax year to which they relate. Obviously, you wouldn’t provide HMRC with more than was required so this means that you must keep the current year’s records, plus those for the previous three years.
Example. The current PAYE year is 2012/13 so you would need to keep these payroll records, together with the records for the PAYE years 2009/10, 2010/11 and 2011/12.
What are “PAYE records”?
The 2003 Regulations define PAYE records as:
1. 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’ PAYE income, e.g. timesheets/employment contracts
• any other relevant payments to employees
• the deduction of tax from, or accounting for tax in respect of, such payments, e.g. P45s, coding notices.
2. All documents and records relating to any information which an employer is required to provide HMRC on Forms P11D and P9D.
Computer records. It’s absolutely fine to maintain the payroll records on computer instead of on paper. In this case, as well as keeping three years’ worth, you must also ensure that the computer records are kept in such a way that an HMRC officer would be able to inspect them.
Other payments. The three-year retention requirement also applies to records relating to NI, statutory payments (SSP, SMP, etc.), National Minimum Wage, payments to sub-contractors and Student Loan deductions. In summary, all records that are created solely for PAYE and related purposes need to be kept for at least three years.
Accounting records
Company law. The problem is that some records that are relevant for PAYE and other payroll-related purposes, e.g. expenses claims, are accounting records and, as a result, they should be kept for the periods defined for accounting records. Section 388 of the Companies Act 2006 requires private companies to keep accounting records for three years from the date on which they are made (it’s six years for Plcs).
Tax law. However, unlike company law, for tax purposes accounting records must be kept for six years from the end of the accounting period. For example, if your company year-end is September 30, you could now destroy any records for September 2006 and earlier. Tip. Whilst the retention period for most payroll records is three years, as they may also be accounting records, we recommend you keep them for six years for tax purposes.
For a link to the Taxman’s guidance on keeping PAYE records, visit http://financialcontroller.indicator.co.uk (FC 05.02.09).
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