Taxman plans record checks

THE year ahead may be a tough one for many businesses but that is no reason to let your record keeping slip into arrears according to HM Revenue & Customs.

Although HMRC has had the power to inspect a business’s records for many years, until recently, this was normally only enforceable during a formal enquiry raised into a tax return.

The Finance Act 2008 gave HMRC the power to inspect business records at any time and for any reason, allowing it to check in-year records without raising an enquiry into a tax return. HMRC initially announced that it intended to use these powers during “interventions” including visits to businesses which can be made with only seven days notice given to the taxpayer.

Most of the interventions carried out to date seem to have been by letter or by telephone rather than by the more controversial route of a visit to the trading premises. However, in December 2010, HMRC launched a consultation document on business record checks prior to launching a new record check process in the second half of 2011.

No legislative changes are envisaged; the consultation is purely concerned with the administrative process, how HMRC should use its discretionary powers over penalties and how it should communicate with SME businesses.

According to HMRC, its enquiry statistics show that 40% of SMEs have poor tax records. Therefore, the new programme of business record checks will target up to 50,000 so-called “high risk” SME businesses a year. It seems most unlikely that HMRC will have the resources to visit tens of thousands of businesses each year but, unfortunately, even if a records check is carried out by post or over the phone, a business could still face penalties of up to �3,000 for not keeping its current year tax records up to date.

It is unlikely that HMRC will charge the full �3,000 penalty if you are a few weeks behind with your cash book or stock records but you could still get a small fine or perhaps a suspended one; we will learn more about the penalty tariff later in the consultation.

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However, HMRC expects to raise an additional �600million over a four-year period from these checks and much of that will come from penalties. Putting off doing your books until next month is seldom good for your business but, in future, it could also become bad for your bank balance.

If your business has incurred tax penalties for late filing of returns or for record keeping errors in the past, you are likely to be on HMRC’s list for a business record check in the future. However, it is more likely to penalise businesses with no records than those who have at least tried to keep their papers in order.

Please get in touch if you need advice on how to keep your tax records up to date.