The new Business Record Check pilots are "test and learn".

HM Revenue & Customs launched a consultation on proposals to introduce real-time business records checks (BRCs) in December 2010. 

It then ploughed ahead and launched pilot BRCs.

The main tax bodies were unimpressed with the consultation document together with HMRC's methodology in assessing the impact its measures to check and fine. The Chartered Institute of Taxation (CIOT) was "dismayed" to find that a BRC pilot was initiated without consideration of the consultation findings.

All may not be lost for SMEs as the CIOT has just received assurance from HMRC that no penalties will be levied during the pilot unless there is "evidence of deliberate loss or destruction or complete absence of business records".

Anthony Thomas, CIOT Deputy President said, "HMRC's reassurance that this is a test and learn pilot, where no penalties will be levied other than in exceptional circumstances, is welcome...they should have made this clear...from the outset. By not doing this HMRC gave the strong impression that they were proceeding with this project prematurely and without listening to consultees".

The primary reason for introducing BRCs is according to HMRC that bad record keeping leads to a loss of tax for 40% of small and medium sized business (SMEs). According to its impact assessment a full record check as part of an enquiry is labour intensive, but a BRC will take less than a day, and may lead to significant penalties when record keeping failures are found. 

At present HMRC can levy a fine of up to £3,000 for bookkeeping failure, however, it is unclear how existing measures sit next the tax penalties regime for errors and suspended penalties. It seems possible to be fined once for making an error and then again for bookkeeping failure (if that was the cause of the error).

HMRC tried a similar pilot described at the time as "interventions" back in 2006/07, this met with similar criticism. The enduring problem being that tax inspectors have little practical experience of day-to-day bookkeeping. There is also widespread concern that HMRC has underestimated the resources that it requires to execute BRCs.

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