Tax spot-checks change again - what you need to do

HMRC’s spot-check regime has caused significant controversy amongst business owners.

Inspectors have been visiting small businesses under the Business Records Check scheme to assess their recordkeeping, with fines in store for those whose paperwork is found to be lacking.

But now the Revenue appears to have backed down in the face of opposition. So what has changed – and have business groups really won the fight?

What is HMRC doing now?

HMRC has announced a “fresh approach” to the Business Records Checks regime. The scheme, which was intended to crack down on inadequate recordkeeping in small firms, had been the focus of ire for business groups – many of whom said that the BRC spot-checks amounted to ‘persecution’ of small businesses.

The Revenue had initially said it would stick to its guns, despite opposition. But last week it was announced that the spot-checks would be suspended until after Apri, pending a review of the scheme.

It is unclear exactly how the BRC will change, but the Revenue has indicated that the checks will be more targeted, and will be linked to “available education and support.” HMRC has told firms to expect the checks to return “early in the 2012/13 financial year.”

So have business groups won?

Yes and no. The BRC regime met with significant opposition from business groups, many of which pointed out the apparent hypocrisy of the Revenue fining small firms for relatively minor infractions while apparently letting huge corporations like Vodafone and Goldman Sachs off millions of pounds in unpaid tax and interest.

But it remains to be seen how successful the lobbying has been. It is perfectly possible that the BRC spot-checks could return with relatively few changes after April – and businesses therefore need to remain alert.

What do I need to do?

The BRC spot-checks were designed to make sure that businesses were keeping adequate records – and that those records backed up the returns they had made to HMRC. The Revenue was handing out fines for firms that were found to have insufficient or inaccurate records.

Good records are your best protection against spot-checks. It is important to understand that accurate recordkeeping is a legal obligation – and that you are liable to find yourself in legal difficulties if you don’t fulfil that obligation, regardless of whether or not the spot-checks are in operation.

You need to keep evidence of all income and expenditure. You will normally be required to keep this for at least five years following the filing deadline following the end of the tax year to which the documents relate.

To help simplify your recordkeeping you might consider investing in bookkeeping software. If you are in any doubt about your obligations you should seek independent legal advice.

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