HMRC Revamps UK Business Record Checks

by Robert Lee, Tax-News.com, London

09 February 2012

HM Revenue and Customs (HMRC) is to take a fresh approach to its business records checks programme (BRC) in the coming financial year. The move comes following a review of the programme, and the revamped approach will be launched early in the 2012/13 financial year.

The review began over a year ago, with a consultation running from December, 2010 to March, 2011 seeking views on how BRC could help improve the standard of record-keeping across the small and medium sized enterprise (SME) population. The review also included discussions of a pilot programme with trade and professional bodies’ representatives. The pilot began in April last year and involved checks by HMRC on the standard of SMEs’ statutory business records. Up until January 4, 2012, 2,437 business records checks had been carried out. These found that 28% of those businesses visited had some issue with their record keeping, and an additional 11% had issues serious enough to warrant a follow-up visit.

The review found clear evidence that the pilot was effective in improving record-keeping practices in smaller businesses. However, it also recommended that the checks are more targeted in future, linking to available education and support. Therefore, when the BRC programme re-starts, businesses considered to be at a higher risk of keeping inadequate records will initially be contacted by HMRC, by phone or letter, and asked about their business records. HMRC says that from this contact, it will consider whether the customer is using appropriate record-keeping systems, and identify those businesses that require a BRC visit. This initial contact will help to target those businesses that need the help provided by a BRC visit and reduce the burden on already compliant businesses.

One of two steps will then be taken. If an initial visit finds a business’s statutory records to be seriously inadequate, a follow-up visit will be arranged, giving them a reasonable time to get their records in order. If the records have still not improved and still demonstrate serious inadequacies, the visiting officer may refer the business for a full tax return check. If that check uncovers an incorrect return, and the inaccuracies are linked back to poor records, a record-keeping penalty would be issued.

Alternatively, in the unlikely event that an initial visit reveals absolutely no records at all, or that the customer has deliberately destroyed records to prevent or frustrate the check, HMRC says a record-keeping penalty could be levied. Although the law allows for penalties of up to GBP3,000 (USD4,765), HMRC will be consulting with business and trade representatives to identify a reasonable tariff for those occasions when penalties will be issued.

HMRC will now postpone making any new business records check appointments until the revamped approach outlined in the report is launched early in the 2012/13 financial year. This will allow further consultation with representative bodies on the implementation of the recommendations in the review and on some details of the new approach. In the interim, HMRC will only undertake visits already booked, as well as follow-up visits to businesses that have already been identified as having seriously inadequate statutory records.

HMRC’s Director of Local Compliance, Richard Summersgill, said: “Four out of ten businesses had an issue with their business records, and of those that required a follow-up visit, we found that some 90% subsequently improved their record-keeping. However, after reviewing the pilot programme and listening to the views of businesses and representative bodies, we acknowledge the need for a fresh approach to business records checks. The BRC visits provide benefits for the business and HMRC. We want businesses to pay the right amount of tax at the right time, avoiding potential interest and penalties. The checks also give greater assurance to HMRC when the business submits its tax returns.”

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