Are your records adequate? HMRC extends

Are your records adequate? HMRC extends Business Record Checks

The number of checks carried out on the adequacy of small and medium sized enterprises’ business records is set to increase.

The checks, which are carried out by HM Revenue and Customs (HMRC), were launched at the start of this year, with the intention of raising the standards of business record keeping.

The pilots of the checks have found that around 44 per cent of the businesses visited had issues with their record keeping, while 12 per cent had seriously inadequate records.

HMRC has revealed plans to complete up to 12,000 Business Records Checks by the end of this financial year, while it plans to boost this to 20,000 for 2012/13. As a result, the number of staff that is employed to carry out the checks will rise from 30 to 120, ready for a national roll out in the new year.

To begin with, HMRC will only be issuing penalties on the most extreme cases of record-keeping, but will be introducing penalties of up to £3,000 for serious inadequacies in the long-term.

Concerns over what constitutes a ‘serious inadequacy’ have been raised, and HMRC has said it will be issuing guidance on this.

Commenting on the initiative, HMRC’s director of local compliance, Richard Summersgill said: “Good record-keeping helps businesses pay the right amount of tax at the right time, thereby potentially avoiding interest and penalties.

“Adequate records give businesses a clear idea of their trading position and profitability, allowing them to make business decisions and adjustments to ensure survival and success. And where a check has shown a business keeps adequate records, it gives HMRC a greater degree of assurance as to the likely accuracy of its tax returns.

“Ultimately, this is about supporting businesses and reducing the tax gap.”

But some disagree, claiming that the moves will waste everyone’s time. John Cassidy, tax investigation and dispute resolution partner at PKF, says:

“There is no proof that a visit from a tax inspector during the year will result in the tax return that a business completes after the tax year has ended – many months later in most cases – being any more accurate.

“It is unlikely that even businesses which are identified as having ‘seriously inadequate records’ for the current year will face a record-keeping penalty straight away because HMRC cannot prove that their future tax returns will be wrong. Of course, such visits might be used to fish for information that gives HMRC reason to doubt past tax returns and lead to a tax investigation into them, but that is not supposed to be the purpose of this exercise.”

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