Retention of Accounting and Tax Records
The retention of accounting and tax records can be complicated and dreary. While the clarity regarding the retention of these records remains adrift for many businesses of any size, the Companies Act 2008 imposes the statutory retention period for diverse types of records.
An organisation’s accounting document retention strategy is contingent on its compliance with legal requirements for the proper filing of taxes and the businesses specific goals.
The Companies Act 2008 asserts that all businesses, at their registered offices, must maintain adequate accounting records and retain certain other documents, records or statements explaining their transactions and demonstrating the financial position. Companies that fail to maintain adequate records risk the imposition of fines.
Types of accounting records
Accounting records can include invoices, receipts, employee payroll, purchases, expenses, VAT records and tax returns. Relevant supporting information and documentation for any of these items ought to be maintained as well. Section 16 of the Electronic Communications and Transactions Act further asserts that records may be digital or physical. It should, however, be borne in mind that the safety of the records remains of paramount importance, lest one contravenes other legislative rules such as the POPIA (Protection of Personal Information Act). Accordingly, a company complies with section 16 if:
- the information is accessible;
- it is in the format in which it was generated, sent or received, or in a format which accurately depicts that particular information; and
- the origin and destination of that data, the date and time it was sent or received can be determined.
How long should you retain accounting records?
Due to various legislative requirements, documents of companies must be retained for a certain number of years. Where different legislation refers to the retention of the same records, a business must be prudent by adhering to the most stringent of the legislative requirements. For instance, sections 29, 32 and 55 of Value Added Tax Act require that records such as invoices, general ledgers and registers alike be kept for 5 years from the submission date of the returns while section 24 of the Companies Act, conversely, requires the financial records to be kept for a minimum of 7 years. It is therefore advisable to retain the financial records for 7 years.
Additionally, the Auditing Profession Act, No. 26 of 2005, implicitly requires documents to be retained for 3 years. The International Standard on Quality Control (ISQC 1) paragraph A61 specifically requires the retention period for audit engagements to be no shorter than five years from the date of the auditors’ report.
Quite evidently from the above, the overriding principle is that each organization adheres to the legislative prescription for the retention of various documents. There are, however, other occasions, where legislation requires a prolonged “indefinite” retention of records, in case of any objections and/or appeals that need to be lodged against assessments.
|TAX Documents||Retention period|
|Returns are submitted.||5 years from date of submission|
|Submission of returns is required but still pending.||Indefinite, until the return is submitted – then 5-year rule applies.|
|Taxpayer not required to submit a return, but receives income, had capital gains/losses or engaged in any other activity that is subject to tax or would be subject to tax, but for the application of a threshold or exemption.||5 years from the end of the relevant tax period.|
|A taxpayer who has been notified or is aware that the records are subject to an audit or investigation.||In addition to the 5-year rule, records must be retained until the audit is concluded or assessment or decision becomes final. The extended retention will apply irrespective of the prescription of assessments in terms of Section 99.|
|A taxpayer who lodged an objection or appeal against an assessment or decision under the TA Act.||In addition to the 5-year rule, records must be retained until the audit is concluded or the assessment or decision becomes final.|
|Presented annual financial statements||7 years from date of issue.|
|Presented accounting records||Accounting records for the current year and for the previous 7 contemplated financial years of the company.|
|A company has been notified or is aware that the records are subject to litigation or investigation.||In addition to the 7-year rule, records must be retained until the litigation process is concluded or the decision becomes final. The extended retention will apply irrespective of the prescription in terms of Section 24.|
Article prepared by: Tinashe Chipatiso (Tax and Corporate Consultant)
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