Hirsch & Co Accountants

HMRC have announced that they are extending their Business Records Checks programme.

These checks were piloted earlier this year and involved checks on the adequacy of Small and Medium Sized Entities' business records. The pilots apparently found that around 44% of businesses visited had issues with their record-keeping, while around 12% of those visited had seriously inadequate records.

HMRC are now extending this activity from mid-September to cover a number of key areas across the UK. As part of this, the number of full-time staff employed on the programme will rise from 30 to 120.

HMRC are planning to complete up to 12,000 checks by the end of the current financial year, with 20,000 provisionally planned for 2012/13. HMRC are increasing the number of visits so it can refine the process, before final decisions on a national roll-out are taken in the New Year. If you have any concerns in this area please contact us.

HMRC has strengthened the size of it's tax investigation department by adding more than 2,000 additional tax inspectors and have launched a drive to investigate what it refers to as “poor record keeping” in small and medium enterprises. The initiative, called the “Business Records Checks” campaign, is being implemented now with penalties including fines of up to £3,000 imposed for “significant record keeping failures.”

HMRC states that a lack of regular analysis, dated cashbooks or untidy records are just some of the factors that will be looked into and are all likely to indicate unpaid tax is due. HMRC is set to investigate up to 50,000 SMEs each year claiming that over 40% of the sector (two million businesses) face further investigation.

The Taxman believes that a lot of businesses do not pay the right amount of tax because they don't accurately record their business income and expenditure. In other words their business records are not of a high enough standard to produce accurate accounts. HMRC can impose a penalty of £3000

We agree that many businesses do not keep perfect records but we work with business owners to help them retain the necessary documents, and use those records alongside a good understanding of the business, to produce a reasonable statement of profit or loss for the tax return. When HMRC wanted to lokk at a clients records we made HMRC back off and they decided to cancel this investigation.

Unfortunately the Taxman is not taking such a helpful approach. He is now sending out 120 tax officers to examine the un-sorted raw records held at thousands of businesses. If the tax officer (who is not a trained accountant), judges the business records to be inadequate the business owner could receive a penalty or more likely be listed for a full tax enquiry / investigation.

Some businesses have been visited already as part of a training exercise for the tax officers. Following those 'test and learn' visits the tax officer may have made recommendations, but he won't have raised a penalty, unless there were absolutely no business records to examine.

Now the learning stage is over and the gloves are off. We have heard of two of these visits in the last month alone. If a tax officer asks to examine your business records, please contact us immediately for advice. In theory they will normally visit your business premises but if you work from home you can make other arrangements. Potential problems can be avoided if we are able to explain to the tax officer exactly how your basic business records are turned into an accurate profit/loss statement