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How Good are Your Business Records? HMRC May Be About to Ask!

How Good are Your Business Records? HMRC May Be About to Ask!
At the start of November, HMRC announced a “new approach” to checking business records. This follows a pilot programme, running since April last year, under which HMRC carried out some 3,400 business record checks.

The scheme will potentially target any small or medium-sized enterprises (SMEs), defined for these purposes as “businesses with an annual turnover below £30 million who employ less than 250 people” – i.e. the vast majority of UK businesses. According to HMRC statistics, more than one in three of such businesses will have “some issue with their record-keeping” while one in ten checks will reveal “issues serious enough to warrant a follow up visit”.

The normal approach will be for HMRC to write to a business and then follow up the letter with a telephone call. During the call, which should last no more than 15 minutes, a series of questions will be asked, the aim being to “assess whether you are likely to be able to submit an accurate tax return from your records”. Three possible outcomes are envisaged:

1.All is well and no further action is needed.

2.No follow-up visit is required, but HMRC’s “Business Education and Support Team” will follow up with information about “self-help guidance and training”.

3.A follow-up visit is required.

Any follow-up visit is expected to take around two hours and will involve a discussion about how the business is run and about the records kept. It will also involve checking a sample of current business records.

HMRC are rolling out the new programme of business checks across the whole of the UK, starting in different regions between November and early February. They mean business, it seems, as one accountant reported in early November that he had received, in a single day, eleven HMRC letters relating to records checks for his clients. 

In the brave new world of tax-speak (whereby we are now all HMRC “customers” – though we are not entitled to take our custom elsewhere!), the press release announcing the new approach advises that “the visits offer benefits for businesses at risk of keeping inadequate records”. This may seem surprising given that the HMRC website clearly talks of penalties that are “usually £500 for the first offence” (and of six times that figure for anybody who deliberately destroys business records). The benefit, it transpires, is that “adequate records help businesses pay the right amount of tax at the right time, thereby avoiding interest and penalties for errors and late payment”.

Accountants may not be delighted about the timing, coming as it does amid the annual rush to complete tax returns (and related business tax computations) before the 31 January deadline. Nevertheless, a business owner contacted by HMRC may well wish to refer the matter to a professional agent. If careless answers are given, not in line with the boxes HMRC wish to tick, a site visit is likely and that could in turn easily lead to a full-blown enquiry.

Practical Tip :

Prevention is always better than cure, so the starting point is to ensure that adequate business records are kept. Details of expenditure incurred must be properly kept but the absolute priority should be the top line – any business failing to keep robust records of its gross income will inevitably face difficulties with the taxman, sooner rather than later. This is hardest, but most essential, for cash businesses.

Ray Chidell