Tax Factor
28 July 2011
Business records checks - Time to get your house in order
From mid-July 2011 HMRC plans to visit 50,000 SMEs each year for four years to check the adequacy and accuracy of business records. The initiative is being undertaken because HMRC believes that some businesses underpay tax as a result of poor record keeping. With penalties to be imposed on those businesses with significant record keeping failures, this article asks what action businesses should be taking now.
HMRC believes that poor record keeping is a problem in around 40% of all small and medium sized enterprises (SMEs) and is therefore embarking on a mission to review the records of 200,000 SMEs over the next four years. A trial has already started and is expected to cover 1,200 businesses across eight cities between April and July after which the full programme will begin.
Although penalties should not be charged during the trial period, they may be issued thereafter up to £3,000. For a serious failure to keep accurate records the cost could be significant for a small business. Additionally, the cost of interruption to business, staff time and possibly advisors’ fees resulting from a HMRC visit can be daunting for a small business.
HMRC’s view is that any burden of cost is likely to be outweighed by the longer term benefit of having good record keeping routines in place, but they estimate that £600m of extra revenue will be collected over the next four years.
Visits will generally be arranged with just seven days notice, and businesses refusing to allow HMRC to carry out their inspection will face a penalty of £300, followed by further penalties of £60 per day until a visit is permitted. However, if there are genuine reasons for businesses to request a delay to an inspection HMRC will consider the case on its own merits and Wilkins Kennedy can assist with any discussions in connection with visit arrangements.
Most records need to be kept for a minimum of six years, but certain areas of taxation (such as PAYE and CIS) have different requirements and it is important for businesses to understand the rules.
In order to minimise any adverse impact from HMRC’s review, as well as avoid any penalties, it is important for businesses to act now to ensure that their records are adequate and accurate.
Wilkins Kennedy is well placed to offer bespoke advice to businesses on the type of records to be kept and appropriate systems and controls to be put in place. We are also able to review existing systems to provide assurance about the adequacy of records as appropriate. Please contact your local Wilkins Kennedy office if you have any concerns or would like any tailored advice.
