Are you in the Revenue’s sights?
A consultation was carried out at the beginning of this year by HM Revenue & Customs (HMRC) concerning how best to implement a programme of Business Record Checks to achieve a major improvement in the standard of record keeping by those involved in running a small or medium sized business.
It was announced that 50,000 cases will be reviewed annually to check both the adequacy and accuracy of business records with penalties being imposed for significant record keeping failures.
During the consultation, HMRC indicated that poor record keeping is a problem in around 40 per cent of all small and medium sized businesses and responsible for a loss of tax in up to two million cases each year. HMRC are adamant that the loss of tax through poor record keeping, particularly in the current economic climate, cannot continue and is therefore determined to use the powers at its disposal to improve business record keeping and so reduce the loss of tax.
They have confirmed that they plan to select cases for a Business Records Check on the basis of risk assessment, focusing on businesses that have features associated with poor record keeping. It is likely that a small proportion will be selected at random to verify the worth of the Business Records Check and to help improve the risk assessment criteria. If your dental practice has incurred tax penalties for late filing of tax returns or for record keeping errors in the past, you may be high on HMRC’s list.
It was originally planned that the Business Records Check would start during autumn 2011. However, HMRC have commenced these checks earlier than originally planned on a ’test and learn’ basis. This means that, initially, no penalties will be charged if poor records are detected, although they have failed to make this clear when notifying businesses that they have been selected for a Business Records Check. This seems to be another example of a high-handed and insensitive approach by HMRC.
Parliament has given HMRC powers to make checks of business records whether or not a return has been made. The law allows an officer of HMRC to enter your practice business premises and inspect statutory business records, where it is reasonably required for the purposes of checking your tax position. It is intended that the Business Records Check will be pre-arranged with at least seven days’ notice. You and your accountant will be made aware in advance and appointments made.
Typically, a Business Records Check will consider a ’sample’ of the records kept to ensure there is a full and clear record of all business ’money in’ and ’money out’ and that the records allow an accurate interpretation to be made as to the nature of the receipts and expenses.
There is already a requirement in law for anyone who is required to make a Self Assessment Return, or Corporation Tax Return, to keep and preserve the records they need to make a correct and complete return. For those of you carrying on a dental practice either alone or in partnership, or as a company, the law further specifies that the records to be kept and preserved must include records of all receipts and expenses in the course of the business.
Business taxpayers must keep the records for five years after the fixed filing date for the Self Assessment Tax Return or, in the case of a limited company, for six years. The law provides that where you fail to comply with record keeping obligations you are liable to a penalty not exceeding £3,000. HMRC policy to date has been that this penalty should be imposed in only the most serious cases for example where records are destroyed.
While the law sets out what records need to be kept, the precise format of those records is not specified. The records you keep will generally reflect the size and complexity of your affairs and may range from the simplest of manual records for a sole trader, to the most sophisticated computerised system for a large dental practice with a number of surgeries. The records should be kept up to date and in sufficient detail to allow you to make a correct and complete return, calculate the correct amount of tax to be paid or claimed and to enable HMRC to check the figures on your tax return, if required.
If you are at all concerned with your record keeping or are in any doubt about what records you should keep, you may wish to discuss this with your accountant.
About the author
Tricia Halliday is a Partner at Martin Aitken & Co. Tricia is contactable at, or on 0141 272 0000. You can find out more about Martin Aitken & Co by visiting http://www.maco.co.uk