HM Revenue & Customs’ Director of Local Compliance Richard Summersgill explains why keeping good records delivers business benefits and outlines HMRC’s plans for rolling out its pilot programme of Business Records Checks.
Keeping up-to-date business records is a win-win practice for both businesses and HM Revenue & Customs (HMRC). Research by the Organisation for Economic Cooperation and Development (OECD) indicates that poor business record-keeping generally leads to an underassessment of tax, even where there is an audit-type check into a return for the period covered by such records.
Good record-keeping gives businesses a clear idea of their trading position and profitability, allowing them to make business decisions to ensure survival and success. It also enables businesses to pay the right amount of tax at the right time, thereby avoiding possible interest and penalties and potentially helping reduce the risk of a visit by the taxman.
However not all businesses keep their records in good order. Between April and July this year, HMRC conducted a number of Business Record Checks on the adequacy of small and medium enterprises’ (SMEs') business records. The checks are part of a pilot programme involving around 800 visits by HMRC officers to businesses in areas including Portsmouth, Liverpool, Edinburgh and Stockport. Around 350 businesses visited had issues with their record-keeping, with around 100 of the total having records that were seriously inadequate.
The checks involve a sample test of records to gain assurance that there is an appropriate record of “monies in” and “monies out”. HMRC is not seeking to ensure that there are intricate accounting systems, rather the focus is on ensuring that appropriate information exists to reflect the underlying business operation. HMRC does not seek to be prescriptive as to the form in which this information is kept.
Business Record Checks will soon cover a number of key areas across the UK including London, Leeds, Glasgow, Bristol and Belfast. We have increased the number of people employed on the programme from 30 to 120. We aim to complete up to 12,000 Business Record Checks by the end of the current year, with 20,000 provisionally planned for 2012/13.
We are looking at options to encourage businesses to improve their records including sanctions such as penalties.
For now we will only levy record-keeping penalties in the most extreme cases of poor record-keeping. In the longer-term, we intend to issue penalties of up to £3,000 for serious inadequacies in record-keeping. We will issue guidance on this, and make a further announcement on when it will happen, in due course.
A key focus of the Business Record Checks programme is to support businesses and encourage good practice. And where a check shows that a business does keep good records, it provides us with a greater degree of assurance as to the likely accuracy of its tax returns.
For further information on record keeping visit Keeping Records.
[ Several questions arise in relation to HMRC's implementation of the Business Records Check, such as,
- What happened to the focus on helping new businesses?
- Why have some of the smallest businesses been told that simply keeping their receipts is insufficient, despite HMRC's original guidance which said that this was perfectly satisfactory?
See Questions Remain Over Business Record Checks at the Chartered Institute of Taxation Website - Ed. ]
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This editorial is the by now standard HMRC "spin" followed by the reality. <br /> <br /> Consider "Good record-keeping gives businesses a clear idea of their trading position and profitability, allowing them to make business decisions to ensure survival and success" so I suppose a great big "Thank you" is due to HMRC for making us spend hours explaining our bookeeping systems to their staff because we had never quite grasped the importance of bookeeping!<br /> <br /> Then the true colours:<br /> <br /> "We are looking at options to encourage businesses to improve their records including sanctions such as penalties.<br /> <br /> For now we will only levy record-keeping penalties in the most extreme cases of poor record-keeping. In the longer-term, we intend to issue penalties of up to £3,000 for serious inadequacies in record-keeping."<br /> <br /> I wonder what were the other options HMRC looked at and how long they spent thinking about them before they settled on FINES and PENALTIES. Consider also the use of the term "up to" which conjures up a completely different emphasis.<br /> <br /> This supposed "Editorial" is actually HMRC justifying fining and penalising taxpayers based on THEIR perception of bookeeping which at the point of the fine HAVE NOT RESULTED IN UNDERSTATED PROFITS OR TAX and anyone who is aware of the work of Accountants in relation to "incomplete records" will attest to.<br /> <br /> Whilst you consider this "editorial" think also of the cost in terms of time and effort to give the HMRC staff access to the records and then have to explain to them how they work. <br /> <br /> Accountants need to stand by their clients at these checks and to actually question HMRC's staff on their knowledge, we need to expose their lack of experience of the sector, we need to expose the stupendously simplistic attitude they adopt to bookeeping and we need to stand up and be counted. Tony Margaritelli - Chair ICPA<br /> <br />