We are sometimes asked by clients when it is acceptable for them to dispose of old farm records, accounts, diaries, invoices and receipts.
For HMRC Income Tax purposes, the general yardstick has been that at least six years' worth of records should be kept at any one time and for Capital Taxes, records should be kept for at least six years after an asset has been sold or given away.
However, following the “Golding” case, we have started to advise clients to keep all records, for all time. Whilst this may seem a burden, in this case, it meant that the taxpayer was successfully able to argue relief from Inheritance Tax on the farm house. Now one leading agricultural law specialist has declared that there should be no such thing as a shredder in any farm office.
In “Golding” the issue turned on whether or not it was normal practice for the farmer to earn a living from the 16.29 acre farm in the way that he did before he died. By going back to 1940, Mr Golding’s executors were able to show that it was normal practice for him to make very little profit, if any at all, yet take a living and raise a family from a relatively small area of land, including a ‘farmhouse’. Without the documentary evidence in this case, as there were no formal accounts, they were still able to compile evidence of the income from “such of the records as they had been able to see” in the farm house. This included invoices and various papers. Without that evidence, the claim for relief from Inheritance Tax would probably have failed. As an estimate, this saved the farmer’s family and executors just over £100,000 in Inheritance Tax.
So, next time as a farmer you are accused of storing ‘clutter’ in the farm office, you can always say that it is part of your long-term Inheritance Tax planning. But do box up your papers, in separate calendar years, and store them somewhere safe.
As professionals, our tendency is to try to run paperless offices. Some of our clients do the same. That is commendable, but bear in mind if electronically stored farm data is later corrupted, or cannot be retrieved, there will be substantial difficulties in showing the evidence if questions are raised.
In the Golding case, the evidence was used to show continuous trading, as well as particular business practices. So always consider not just backing things up, but also keeping a hard copy.