Insights

HMRC recently announced that since their pilot exercise was so successful they are going to extend their Business Records Checks programme. It was inevitable it would be deemed successful, ‘Record checks’ are effectively a euphemism for ‘getting fast access to accounts to check for tax shortfalls’.

The pilot programme involved visits to SMEs to ensure that their business records were adequate. Around 44 per cent of businesses visited had ‘issues’ with record-keeping, while around 12 per cent of those visited had seriously inadequate records.

Losing £2m a year

By the end of this financial year alone, HMRC plans to undertake a further 12,000 visits with the objective of bringing about an improvement in record keeping and a reduction in the resultant tax loss to the Treasury. They have estimated they are losing about £2million each year as a consequence of poor records.

HMRC stated “The loss of tax through poor record keeping, particularly in the current economic climate, cannot continue and HMRC is, therefore, determined to use the powers at its disposal to improve business record keeping and so reduce the loss to the Exchequer that stems from poor business records”.

There are question marks surrounding some aspects of these proposed visits; for example what do HMRC believe to be inadequate records?

The Chartered Institute of Taxation stated  “what counts as adequate records needs to have regard to the sort and size of business... expecting the smallest businesses to have perfect records kept up to date every day is frankly unrealistic, inappropriate and wholly out of kilter with the Government's stated aim of reducing burdens on business”.

So the million pound question is; are your records really up to this type of scrutiny?

Ask your accountants about good record keeping

With the possibility of penalties and potential additional assessments for under declared VAT and other taxes, it may be time to ask your accountant what constitutes good record keeping and to review your own records.  As we all know, forewarned is forearmed.

Although the onus is on HMRC identifying problems and possible tax shortfalls, we think there is an upside to all this.  Better record keeping generally means a better-run business, with better cash flow management and earlier identification of potential issues .

HMRC thinks so too and have stated in their online summary of the issue, “A business that has an adequate and running record of its trading position and profitability has more information available to be able to make the necessary business decisions and adjustments to ensure survival and success.”

With access to finance being tight, having records in perfect order can only be a good thing.  So, maybe HMRC is doing everyone a big favour by upping its Business Record Checks game?

Simon Paterson is a partner at RJP, email him at sp@rjp.co.uk.