To the bemusement of observers HMRC has announced that it is continuing its Business Record Checks programme; this is before it has had a chance to evaluate the findings of its latest efforts.

HMRC’s plan outwardly appears quite simple: to raise cash fast. If your are in business it may visit you to check your bookkeeping: if it considers that your efforts are inadequate you will face a fine.

However, the Chartered Institute of Taxation (CIOT) is very concerned and it has already queried the legal basis of applying penalties before a tax return has been submitted.   

The CIOT is also cautious about HMRC’s assurances as to whether “a full shoebox of invoices/receipts” counts as being adequate, after learning that the new compliance team considers that that retaining a set of purchase invoices without listing them is inadequate. 

There are a number of problems to iron out:

  • Books and records are not tax returns: surely it is the accuracy of the return that is critical?
  • Whether record keeping is adequate or not is a question of judgement according to individual facts. As every case may potentially be different what standard will be applied?
  • Does it really matter what date a list of purchases is created?
  • Does it make a difference if a qualified accountant is completing the bookkeeping annually?
  • Is there to be some mandatory requirement about completing this work in a set time scale? 

CIOT President Anthony Thomas said: 

 “Expecting the smallest businesses to have perfect records kept up to date every day is frankly unrealistic, inappropriate and wholly out of kilter with the Government’s stated aim of reducing burdens on business…The CIOT is also unhappy about HMRC’s handling of the process of expanding this programme. They have begun rolling out the programme before providing evidence that the trials conducted earlier this year have been cost-effective. 

HMRC’s approach in this area seems to be a blunt instrument designed with little or no input from professional bodies, and their approach has given many the impression that their objective is more about revenue raising – through the application of substantial fines – than spreading best practice…That is not the way to build a good relationship with tax advisers.”

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