HMRC’s Business Record Checks – are you ready?

As of 1st Nov 2012 HMRC have restarted their Business Record Check programme, on hold since 3rd Feb this year.

The Treasury has a deficit to fill and HMRC will no doubt have been set targets for tax collection that provide part of the answer to the problem.  Sadly the truth is that it is much easier get results by targeting small businesses rather than large ones and there is no doubt HMRC is taking a targetted approach to its work.

The review into the Business Record Check programme has concluded that HMRC should focus on those businesses most likely to have inadequate records.   It should be noted that part of the point of these checks is to work out which business are liable for the £3,000 penalty that applies to anyone not keeping adequate records.  The other intention of course is to uncover unpaid tax.

It is also worth noting that the first phase of this programme focuses on East Anglia and London.

Clearly it is not much fun dealing with a tax investigation, let alone paying penalties.  Here are our recommendations for eliminating the risks as far as possible:

1.  Get a good filing and bookkeeping systems in place.  HMRC expect you to be able to demonstrate how you arrived at the figures on your tax return.  To do this you need a sound bookkeeping system.  They also expect you to be able to back up the figures on the bookkeeping with evidence.  This can be electronic or paper filing but whatever it is, you need to be able to show where the figures on the bookkeeping came from.

This is one reason why at Crunchers we conduct a review of financial systems as standard with all clients.

The good news is that sound financial systems pay over and again in terms of good decision making.  The bookkeeping process was after all invented not to fill in tax returns and demonstrate figures to HMRC but to allow business owners to manage their businesses more effectively.

2. Get tax investigation protection.  Even if your records are in shape and there are no skeletons lurking in your records, a tax investigation can be time consuming and costly in itself.

We recommend all clients to get tax investigation protection, there are a number of excellent providers to choose from but our favourite at present is the Federation of Small Business which provides this insurance as standard with membership.  As a combined package of other benefits it is superb value.

Having this protection in place means you can afford to pay an accountant to do any work HMRC require and also represent you during the investigation.  This can be enormously helpful.  For example HMRC’s rules are not always backed up by case law.  Knowing what you must disclose and what is not required, what your own rights are in the process is enormously valuable and reassuring.