Business record checks could be expensive for smaller firms
Plans by HM Revenue and Customs (HMRC) to scrutinise the record keeping of smaller firms could prove costly for many enterprises, it has been claimed.
In its response to HMRC’s consultation on the proposals, the Institute of Chartered Accountants of Scotland (ICAS) said that the plans are flawed.
Under the new regime, as many as 50,000 small businesses could come under HMRC scrutiny as a way of making sure their business records meet minimum reporting standards. If not, a fine of up to £3,000 could be imposed.
However, the ICAS argued that HMRC’s assumptions about the incidence of inadequate business records are unsubstantiated and that the estimated costs of the scheme are being massively understated.
HMRC has calculated that each visit, on average lasting half a day, would cost a business £54.
The ICAS, on the other hand, believes that, given the level of disruption and the consumption of an adviser’s time that a visit will entail, the actual cost will be ten times as great, approaching somewhere nearer £560.
Ian Dewar, convenor of the ICAS small business tax sub-committee, described the proposals as flawed: “Experience of our members in practice suggests that poor record keeping, where it arises, can often result in their clients paying too much tax. This comes about because good practitioners take a prudent line in preparing accounts and this often flexes the end result, the tax payable, in favour of HMRC.”
Mr Dewar said that the basic assumption of the tax authorities that SMEs with poor records have chosen to have poor records is a misconception.
He continued: “Those with the courage and tenacity to embark on new business ventures are forced to battle from the outset against a mass of Government regulation and red tape. Typically they don’t go into business because of their record keeping skills.
“HMRC should be looking for positive ways of encouraging taxpayers to maintain adequate records, rather than adopting a big-stick approach that we believe will cost owner managers a lot of resource that could have been better directed towards growing their businesses.”
The ICAS wants the first of any HMRC business record checks to be penalty-free, with the tax body simply providing practical advice or a warning if appropriate.