Business Records Checks Campaign

HMRC have announced a consultation on their planned programme of checks on business records within the small and medium enterprise (SME) sector.

They attempt to justify the introduction of this programme by claiming that research by the OCED suggests (to HMRC that is) that poor business record keeping is responsible for the loss of tax in up to 2 million SME cases annually.

The consultation exercise is limited to consideration of the best way to implement the programme – not whether it is a good idea in the first place.

This is an ideal time, therefore, for you to take stock of your book keeping; have it reviewed by your accountant if you want to ensure that it will withstand any new attack from HMRC under this programme.

How this campaign will manifest itself is yet to be seen.  HMRC said it will use its existing powers to tackle the worst cases each year from the second half of 2011. Penalties will be imposed for “significant record keeping failures,” it said.

It also has no precise definition of unsatisfactory book keeping.  However, it gave the following examples for inspectors:

  • Untidy and unanalysed records such as a box full of invoices, bank statements, cheque stubs and so on, not supported by an analysis book such as ‘Simplex’.
  • Analysis books not completed regularly – a system whereby books are written up more than four weeks after the event is not as reliable as books completed contemporaneously.
  • Cash books not written up in date order indicating that the books may have been written up from the bank statements
  • Significant unanalysed and un-vouched round sums.

We will be publishing information and guidance here over the coming weeks and months to help with this issue.  The best insurance against falling foul of this campaign is to have robust book keeping systems in place.  If you are a uncertain as to whether your records would live up to scrutiny then common sense says it would help your cause to be seen to be making improvements currently.

One question that I would like to know the answer to is how will HMRC know which businesses ought to be targeted before they’ve had access to the books and records?  As already stated HMRC are currently considering how to implement the programme.  Are we able to assume at this point that, in simple terms, they will either choose who to investigate based on statistical indicators, or they will increase the number of enquiries raised with the main intention to review the standard of bookkeeping rather than review the accuracy of the submitted tax return?  Am I being too cynical? – it has been known.  It could be that they run a series of initial visits to determine who’s records need closer scrutiny.

Many Balance clients have some peace of mind as they have taken out Tax Investigation Insurance with us and this does cover the cost of the time we have to spend dealing with tax enquiries on their behalf.  So if there is suddenly a wave of new investigations at least they don’t have to worry about unexpected accountancy fees.  The insurance, however, obviously does not cover any tax due, or penalties and interest raised.

As already mentioned, we will be gradually publishing various guides to cover what we consider to be the main areas for concern.  However, in the meantime if you have any particular suggestions regarding what areas you’d like guidance on first please let us know in the comment box below, or contact us directly.

This article was compiled by Deborah Balance on behalf of the Balance Team.

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