Business record checks re-launched for SMEs

Fewer SMEs may be subject to spot checks on their business records under a new approach to HMRC's business record checks (BRC) programme.

A pilot programme for BRCs began in April 2011 with the aim of ensuring all business records meet statutory requirements and that tax returns are able to be completed accurately and within time limits.

The alterations follow a review of the initial pilot by trade and professional bodies that heavily criticised the initiative, which subjects SMEs to spot checks on their records and can issue fines of up to £3,000.

Around 3,431 checks were carried out up to 17 February 2012 as part of the pilot. It found 36 per cent of businesses with issues surrounding record keeping, of which 10 per cent had serious enough issues to warrant a follow up visit from HMRC.

Although the review found evidence the programme was effective in improving record keeping practices amongst SMEs, it recommended better targeted checks and wider availability of education and support.

The pilot was suspended from 3 February until 31 October to allow HMRC to redesign the process.

Under the new approach, HMRC will now contact businesses deemed at 'high risk' of keeping inaccurate records by letter to arrange a short telephone questionnaire. It will then confirm whether further action is required; businesses with 'some identified issues' will be offered self-education options, while only those at 'high risk' will be referred for a business record check visit.

The redesigned checks process has now been launched and will be rolled out across the UK on a region by region basis between late November 2012 and February 2013.

Commentating on the re-launch, the Chartered Institute of Taxation (CIOT) criticised HMRC and warned that small businesses are still at risk of penalties.

President of the CIOT Patrick Stevens said: "HMRC have still not provided a satisfactorily clear reasoning to justify their belief that they can charge penalties in-year before the return goes in for keeping records below the standard they consider is adequate."

"It is important that the approach taken with different kinds of businesses is appropriate. It is unrealistic to expect smaller businesses to have perfect records written up every day," he said.

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