Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Keeping client records: What you need to know

by
7th Apr 2014
Save content
Have you found this content useful? Use the button above to save it to your profile.

The question of what to do with old or out of date client records regularly crops up at this time of year. Rachael Power collects a range of answers.

With spring in the air, the question popped up again recently. In response we’ve compiled the best answers and advice from the community in this round-up article. 

In reply to chancewind's question, "How long do you keep records for a client?" Zebaa captured the ambiguity at its heart by answering, "6, 8, 15 & 40... This is a question there is no right answer for as it depends on the subject of the record and your attitude to risk."

Below, we explore the different rules and considerations that come into play, and examine what you can do to reduce the clutter of paper records.

Tax records

Professional bodies, including the ICAEW and ACCA, have their own guidance on keeping client records for their members. 

HMRC's official stance is that the maximum amount of time records need to be kept is six years, commonly referred to as the 'six-year-rule'. 

"The six year rule applies to all records and this applies to accountants and advisers too," a Revenue spokesman said. 

But the length of time that records should be kept can vary depending on the type of document and client.

David Winch, leader of AccountingWEB's money laundering and crime discussion group, touched on this point in a 2010 Any Answers thread

Despite leaving practice more than a decade ago, he retained some files relating to clients for whom queries were more likely to arise. He added that his professional indemnity policy specifically included coverage for that period. 

Other points Winch touched on were: 

  • HMRC can seek tax, interest and penalties from clients on matters which have occurred within the last 20 years 
  • There is no expiry date in regard to your or your clients' criminal offences 
  • Tax arising from current events can be affected by historical transaction prices
  • You should keep files relating to criminal cases indefinitely. 

Money laundering requirements

As Winch explained, accountants also have record retention obligations under the Money Laundering Regulations (MLR) 2007. These require documents relating to the client's ID, business relationship with the adviser and 'occasional transactions' to be retained for five years from the end of the engagement.

But Winch clarified that some of these provisions were intended more for trading organisations that handle client funds. 

"For an accountant that means information about client account transactions (if there are any) relating to the client. It can sensibly be regarded as including other financial transactions between the accountant and the client - for example where the client pays the firm's fees," Winch wrote.

"I do not think the MLR 2007 require the retention of working papers.

"The 'odd' thing about accountants is that we inspect documents and information belonging to the client in connection with financial transactions of the client which are 'nothing to do with us', in the sense that we are not a party to the transactions and have no knowledge at all of them until after they have been completed. We have no involvement whatsoever in these transactions.

"It follows that those transactions do not form part of any 'business relationship' which we have with the client. We simply collect information about the client's business relationships with others. So I do not see that information as falling within the wording of the MLR 2007 in connection with record keeping requirements," he said. 

Winch added that it was also sensible to keep copies of Suspicious Activity Reports (SARs) received from staff and those filed with SOCA and to keep records of staff training in MLR matters and the firm's policies and procedures manual in relation to money laundering. 

Admissibility of evidence

Other relevant regulations include sections eight and nine of the Civil Evidence Act 1995. This allows electronic documents to carry equivalent weight in terms of admissibility as physically signed documents. 

British Standard BS 10008:2008, meanwhile, explains tech requirements and business processes to ensure the content of a particular electronic document or data file has not changed since it was stored in the secure document repository. 

The main purpose of BS 10008 is to ensure that any electronic information required as evidence of a business transaction is afforded the maximum evidential weight.

Client management

AccountingWEB members have regularly shared their document retention experiences through the years.

Some, such as daisyloved, retain all files for all clients but struggle with what to do with records from clients who are no longer with her practice. One good idea is to return records to clients when they disengage, and including a paragraph in the disengagement letter stating that any residual records will be destroyed after a certain period of time.

Being left with shelves and cupboards full of records is another dilemma that troubled Ken Howard. He felt safe destroying records for clients he has not worked for in the last six years, but had qualms about how to handle records for ongoing clients and limited companies that have been struck off. 

In addition to Winch's earlier points, other members advised retaining records such as employer's insurance policies for 40 years

Some suggest keeping correspondence and working papers for seven years, and keeping a permanent file if needed. 

Other members say they keep all of their client records going back as far as two decades, by scanning documents and destroying paper copies after two years. 

Paperless office

The merits of going completely paperless were put forward by AccountingWEB member SteveOH, who wrote that he has "never looked back" since implementing such a system. 

He said that scanning everything as it comes in takes less effort than filing away papers. Depending on the type of document, it can then either be stored for a period of time or destroyed immediately. 

Online backups for electronic document files aren't necessary if you've got an external hard drive, but online storage does have the advantage of built-in anti-virus protection.

Another option for those looking to reduce clutter in the office, according to Jimness, would be to ship files out to external storage, with a destroy date put on them. 

"We advise clients of this policy in our engagement letters. Our disengagement letters reiterate the policy and advise clients to collect the books and records that belong to them by X date, otherwise they too will be sent out to storage and we will recharge for the storage costs accordingly," he explained.

Useful links

Replies (11)

Please login or register to join the discussion.

avatar
By digitalabacus
08th Apr 2014 11:05

Record keeping - if in doubt always say seven years

At the beginning of our business I took legal advice on how long to keep records for, the very clever barrister replied " you should keep your records for as long as the longest period that any professional person was successfully sued ". Asked as to who this was ( at that time, and this was 31 years ago ) the reply came " a solicitor". And the period was ? "13 years".

The bigger issue in an electronic age is the ability to view the data given the various migrations through the various versions of software and operating systems, most notably the mighty Microsoft.

The secondary but equally important issue is the access to your data and working papers and the clients' data when it is kept online and not within your own computer, what if your data is in the Cloud somewhere and HMRC need to see it after your practice has ceased. Do you keep the subscription going merely to satisfy the need for continued access ? Do you disclose your access IDs and passwords and let HMRC get on with it or do you download and/or printout everything that is needed ?

 

 

Thanks (1)
avatar
By J9
08th Apr 2014 11:43

Qualified accountant?

Something I have been asked?

Do you have to have studied for a specific accounting qualification to call yourself an accountant or can it be bookkeeping qualifications and being self taught?

Thanks

Thanks (0)
Replying to johngroganjga:
avatar
By hpyatt
08th Apr 2014 12:08

unqualified accountant

Just as I can call myself a Teacher, an Acupuncturist or a Magician, anyone can call themselves an accountant after 5 minutes without even knowing what a cash book is.

And believe me, judging from some of the clinets I have taken over, many have.......

 

 

Thanks (2)
Replying to leshoward:
avatar
By SimonP
10th Apr 2014 16:15

Clinets?

[hpyatt]

Just knot a Teecher of Inglish huh?  :-)  

 

Thanks (0)
Replying to adam.arca:
avatar
By hpyatt
11th Apr 2014 12:20

Job Descriptions

And certainly not a touch typist either. I should have persevered with Mavis Beacon back in the 90's, I could be 60 wpm by now !!

Thanks (0)
avatar
By Sykco
08th Apr 2014 12:10

Merits of document management system 'a paperless office?'

The merits of a document management system depends largely on the quality of the staff.  The ones that were slack in doing paper filing tend to be the ones doing it electronically too.

Since the implementation of our DMS we haven't looked back either ever piece of post, email etc has been lodged on the system albeit a little later than we all would have liked. 

However the problem arises is putting historical information the system.  We had kept every file since 1996 whether the client was active or not.  We had over 250 filing cabinets and another 250 bankers boxes to file and guess what over 3 years later employing 2 full time members of staff we are nowhere near the end...

I don't even want  look at what client books and records might be in the basement.

Thanks (0)
avatar
By Thomasbacon
08th Apr 2014 12:31

Good points and useful discussion

However it is annoying to see so many typos in the text!

Thanks (1)
avatar
By leon0001
08th Apr 2014 12:48

Struck off company records, statutory books etc

Where an England & Wales company has been struck off, we fax the Treasury Solicitor's Bona Vacantia department (TSol). Our standard fax lists the items we are holding for the company, eg statutory registers, minute books, old financial records, employers' liability insurance certificates or whatever. These are property of the former company and therefore comprise bona vacantia.

We advise TSol that the property is being held for them to collect, at their expense, in the next (say) 6 weeks, after which we will discard it (note - no promise to shred or securely dispose of).

We usually receive by return a communication that TSol is not interested in these items. When we have seen this, we can dispose of them.

TSol will also file a waiver on the dissolved company's record at Companies House. This will provide evidence that they do not want these items.

This procedure is only applicable to companies that have not been liquidated, where of course we should obtain the liquidator's instructions as to retention or disposal.

Thanks (0)
avatar
By The Accountant
08th Apr 2014 13:19

Clients' Records

I return all my clients' records to them after completion each year.  All wrapped up and bundled nicely with a 'keep until' date marked clearly on them.  My own working papers with regard to each client are kept gathering dust!

Thanks (0)
avatar
By debrahuzzard
08th Apr 2014 15:26

scanning documents, best format?

Whilst scanning documents and shredding originals sounds tempting I did start work on an Apricot with 5.25" floppies and a microfiche! Having worked my way through PCW logic, dos and zip drives, I am very wary of ending up with important paperwork saved in what might be an unreadable form in xxxx years time. What is the best, most "future proof" format in which to save scans, eg. should it be as a pdf , a jpeg? I have shown my age by admitting to earlier formats but I do like to have a physical piece of paper (much to my younger clients derision who have not yet been left with unreadable discs!) but am willing to move the ever growing pile of paper into the digital age, just don't want to end up with the equivalent of a betamax (which was the better format!).

Thanks (0)
avatar
By DMGbus
11th Apr 2014 08:57

Data back up 2 issues.

Backing up of data has two specific issues to be addressed:

(1) File format (eg. pdf, jpg which have been good for the past several decades)

(2) Hardware format (eg. external HDD, Flash Memory, tape)

 

.jpg and .pdf seem good at present and no sign of them becoming unreadable anytime soon.     However in many decades time whilst this might be irrelevant to professional data, it will be relevant for historical research data for future historians.   My view is avoid tailor-made brand specific file formats as these may well disappear with time.

Regarding hardware I work on the basis that hard disk drives (HDD) may have an operating life of 3 years, so always have at least three in use for back up at one time and bbe prepared to copy data from one of the two "good" drives when the tghird one fails.   Flash memory has issues that dissuade me from regarding it as a reliable and viable option on its own.

 

Thanks (1)