Business group queries new proposals for checking firms’ records

A leading business group, the Federation of Small Businesses (FSB) has expressed its concerns that proposed new rules from HM Revenue and Customs (HMRC) on spot-checking company records runs the risk of being used as an exercise in raising tax revenues.

The consultation suggests that as many as 50,000 small businesses could come under HMRC scrutiny as a way of making sure their business records meet minimum reporting standards.

If not, a fine of up to £3,000 could be imposed.  

The FSB voiced worries that the consultation, which closed on 28 February, lacked information on how HMRC would identify businesses for investigation and how the checks would be carried out.

Another FSB concern focuses on the lack of details that define the standard criteria that will be used to assess each business, and the difficulty involved in justifying what constitutes a "significant failing" given the divergence of firms across a number of different sectors.

The FSB wants to see the charging process is left as it is, and small firms given the opportunity to improve their records if processes are deemed inadequate.

For the FSB, it would not be fair to impose a 'first offence penalty', where the business is unaware of the offence that has been committed. 

Roger Bibby, the FSB's economic, tax and finance committee chairman, said: "FSB research has shown that one in 10 small firms spends more than six hours per week fulfilling their tax responsibilities. However, many small businesses do not have a dedicated finance or accounting department and will be unaware of the intricate details of tax obligations - especially when starting out. 

"Rather than imposing fines which could cripple some small firms, it would be more pertinent for HMRC to move to a system where small businesses are encouraged to improve record keeping and understand their tax obligations better.

"At a time when the Government is looking to promote growth and get the recovery on a firmer footing, adding to the bureaucracy that a business owner has to deal with through additional checks, goes against what the Government is trying to achieve."