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In response to HMRC's editorial last week about the Business Records Check, Robin Williamson of LITRG says HMRC must follow its own rules.

Introduction

In last week’s editorial, Keeping Business Records, Richard Summersgill wrote about HMRC’s pilot programme of checking the records of small and medium-sized enterprises, describing ‘good’ record keeping as ‘a win-win practice for both businesses and HMRC’.

But what is ‘good’ record keeping? Many in the tax profession hold sharply differing views from HMRC and its staff conducting the pilot. And if professional tax advisers are wary of these business records checks (BRC), one cannot help feeling anxious for the many unrepresented small and very small businesses.

HMRC’s duty is to act in accordance with the law and with the Department’s own published practice. So in any compliance operation, there are two things in particular that HMRC officers must observe strictly and be open about with taxpayers whose records they are scrutinising.

HMRC Must Follow the Legislation

The first of these is the legislation (TMA 1970, s 12B as amended), which Parliament intended to be not a burden, but a means to an end. It requires the taxpayer to keep ‘all such records as may be requisite for the purpose of enabling him to make and deliver a correct and complete return for the year [of assessment] or [other] period’. For those carrying on business alone or in partnership, that includes records of all receipts and expenses, or all sales or purchases.

Crucially, the legislation does not require all records to be kept; just those that are needed to enable the taxpayer to make a correct and complete return. In deciding what those are, the taxpayer must exercise judgment. The emphasis of HMRC’s checks should be on educating and assisting the taxpayer in making that judgment. The ultimate test of good record keeping is whether the ensuing tax return is correct and complete. Prima facie, the accuracy of a tax return, when made, is the sole test for assessing the quality of business records.

Again, the legislation is flexible about the manner in which records are to be kept. They do not have to be written up daily in neatly compiled books. It may not even be necessary to preserve the records themselves, so long as the information they contain can be retrieved. Mr Summersgill said that ‘HMRC does not seek to be prescriptive as to the form in which . . . information is kept’; that is just as well – neither is the legislation.

HMRC Must Act in Accordance with its Charter

The second thing that HMRC officers must adhere to, and make taxpayers aware of, is the Charter. This requires them, among other things, to tell taxpayers their rights, to make decisions in accordance with the law, to use their powers reasonably, to explain why they need to ask questions and why they have decided to check a taxpayer’s records, to provide information in a way that meets a taxpayer’s particular needs, to respect taxpayers’ legal rights when they visit premises. That list is by no means exhaustive.

Will Mr Summersgill assure us that HMRC officers will be open and frank with every unrepresented business proprietor whose records they check, both about the relaxations and safeguards under the legislation, and about the provisions of the Charter? That the BRC process will be used as a way of helping taxpayers exercise judgment rather than punishing them for getting it wrong? If he can, there might be less antipathy towards it.