Business Finance: HMRC is clamping down on poor record-keeping, warns Peter Harrup

FOR the past three years HM Revenue & Customs has been trialling ways to ensure that businesses keep good records because it believes poor records result in lost tax revenue. Its more controversial proposals have been scaled back but the new process is now live.

Businesses are chosen for a business record check using HMRC’s computer based risk analysis. So if you get a letter from HMRC’s compliance centre it should not be ignored because it means your business was identified as being “at risk” of having poor records.

These letters will warn owners to expect a call from HMRC within the next seven days. If you have an accountant, contact them immediately you receive such a letter so the accountant can answer HMRC’s concerns for you.

If you take the call from HMRC yourself, bear in mind that the officer will be trying to establish whether or not your records are “adequate” for you to complete your tax return correctly. This does not mean that they have to be kept in an expensive software package or written up daily; they just need to be suitable for your business so that you can complete your tax return without guess work.

The call from HMRC will involve answering around 15 questions on how you keep your business records and the officer will decide on one of three possible outcomes.


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The first is that your records are adequate. The second option is that you need some help and guidance on record keeping at which point the officer will suggest some online materials for you to use. If you don’t do this homework and improve your records the outcome could be rather worse when HMRC checks again.

The third potential outcome is that the officer tells you that your records may be inadequate. A meeting at your premises will then be requested to examine your records and discuss any improvements needed. You can object to a visit but this may only increase your risk profile in HMRC’s eyes, so it is probably sensible not to.

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However, if it gets to this stage, it will be important to draft in a professional to support you at the meeting and to implement the changes that HMRC suggests. A follow-up visit will normally take place after three months and, if HMRC still judges your records inadequate, it can fine you up to �3,000.

If you fear your records are a mess, get professional help to sort them out before your business appears on HMRC’s risk radar.

: : Peter Harrup is a partner at the Ipswich office of accountants and business advisers PKF.

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