HMRC readying spot checks - what you need to do

This week it emerged that HMRC is planning a new wave of spot checks on small businesses.

The Revenue intends to visit thousands of small firms to make sure that their record-keeping is up to scratch. The plans have caused controversy, with MPs and business groups suggesting that HMRC is hounding entrepreneurs with one hand, while using the other to write off millions of pounds owed by firms like Goldman Sachs.

Small business owners need to understand the threat posed by spot checks – and make sure that their records are in order.

What is HMRC doing?

HMRC plans to investigate as many as 20,000 more small businesses under its Business Records Checks (BRC) system. The new wave of investigations will begin in April, following trials during 2011.

The BRC regime has already been controversial, with small business groups suggesting that the checks could cause costly disruption to businesses at a time during which many can least afford it.

But the government has said that it intends to press ahead with the checks, and that it will impose fines on businesses that are found to have insufficient or incomplete records.

The visits are intended to make sure that businesses have the necessary evidence to back up their tax returns. Firms that are not found to have kept good enough records can be fined up to £3,000.

What are big businesses?

The government has faced criticism on two fronts over the BRC regime. David Cameron’s plans have already been met with grumbles from Tory backbenchers, many of whom are concerned about the impact on business – or, perhaps more accurately, about the impact on the Tories’ claim to be the ‘party of business’.

Even louder, though, have been the accusations of double standards over HMRC’s treatment of big companies. There is a sense that small firms are being treated unfairly; indeed, one Conservative MP has described the Revenue’s actions as “persecution”. Meanwhile, large firms are apparently being let off enormous tax bills following a chat with the taxman. HMRC head Dave Hartnett has been heavily criticised over his treatment of firms including Vodafone and Goldman Sachs, which have allegedly been offered “sweetheart deals” in which their liabilities have been cut by millions of pounds. Hartnett, who faced an embar

HMRC have been accused of focusing their efforts on smaller firms, which tend not to be able to hire big-name accountants and lawyers to fight their corners, while simultaneously allowing big businesses to walk away from huge bills.

What do I need to do?

Business owners need to make sure that their records are in order at all times, regardless of the threat posed by BRCs. This is not just a legal requirement: it is also good business sense.

You will be required to keep documentary evidence of sales and purchases or other expenses for at least five years following the 31 January after the tax year to which the documents relate.

You might also want to consider taking out legal cover to help protect your business against the potential costs of an investigation. You should remember, though, that legal cover requires you to fulfil your legal obligations, with particular reference to record keeping.