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Anthony Margaritelli, chairman of the ICPA, questions HM Revenue & Customs' intentions regarding Business Records Checks.

Taxationweb readers were recently treated to a guest editorial by HMRC’s Director of Local Compliance Richard Summersgill  ( Keeping Business Records ) stating how keeping good records is a win-win practice for businesses and the taxman.

From the article one could almost believe, I did say “almost believe”, that HMRC was doing this for the good of the business because “Good record-keeping give businesses a clear idea of their trading position and profitability” so of course these visits were all about how their staff could improve the records to help the proprietor and of course this could all be done by their staff in a couple of hours, not said but certainly implied.

Get real.

We all know what the BRC is about and we actually get the real answer late on in the article: “We are looking at options to encourage businesses to improve their records including sanctions such as penalties”.

Now lest we forget the taxpayer at the time of the visit has not under-declared their income nor overstated their expenses. They are not part of the black economy because they have declared their business activities else of course how would HMRC know they are in business? They may just keep records in a way that HMRC simply either don’t understand or frankly don’t like based upon their own limited experience.

HMRC have to close the tax gap, this we know, and we also know that HMRC are doing this by an ever increasing raft of fines, penalties and surcharges and this BRC is another one of those. This particular fine gathering process is the most invidious because it purports to be something it isn’t. BRC hides behind a screen purporting to help the business when in reality it simply is an investigation by another name.

Bookeeping cannot be a “one size fits all” option because no two businesses even in similar industries are the same. This is why accountants spend many hours with their clients sorting out systems that fit the circumstances. We do not have the luxury of stating “We do not seek to be prescriptive as to the form in which the records are kept”. For many small business the annual accounting process undertaken by the accountant forms part of their bookkeeping system and to look to criticise and penalise the system NOT the results after they have been declared on a Tax Return, etc., is disingenuous.

So each visit is to take approx 2-3 hours so no real cost to the business that has done nothing wrong is there? Do HMRC really believe this?

Fines and penalties are never going to win popularity contests but they should be understandable and exact, to be fined by some subjective logic that the end result MAY NOT result in the correct tax paid shows HMRC in its present day true colours.

Someone somewhere at HMRC has worked out that they don’t win enough tax enquiry cases, it’s not cost efficient to try to track down the black economy and that the tax gap is unlikely to be closed during recessionary periods. The result appears to be that fines and penalties are the way forward and if we can render a fine based on a subjective and one sided view even better.

Accountants everywhere need to ensure they attend these checks with their clients and we need to question HMRC staff on their experience and qualifications in such matters, we need frankly to stand up and be counted.