HMRC’s Business Records Checks (BRCs) re-started in 2012, with some modifications following a review and re-think after the original pilot

At a glance

  • A full BRC involves a compliance check to see whether a business is retaining the type of records which HMRC thinks are adequate.

Under a four step approach, which is being rolled out regionally over a 14 week period, businesses are risk assessed after they have completed a questionnaire.

  • HMRC risk accessess taxpayers by review and telephone call.
  • If a risk of bad record keeping is perceived, a visit is announced.
  • If the check reveals that record keeping is insufficient the business will face a follow up check after three months.
  • On follow up, the business will face penalties if the record keeping has not improved.

What's new?

HMRC began to wind down their business records checks in late October 2015. Since then no new checks have been initiated by HMRC but the penalties for failure to keep and retain records (see below) continue to apply.

What records are required to be kept and preserved

  • The records required should be sufficient to enable a person to make a correct and complete tax claim.
  • He must preserve those records until the end of the 'relevant day'.
  • Relevant day is the later of the date on which an officer of HMRC completes enquiries into a claim, and the day on which an officer no longer has power to make such enquiries.

Tax penalties and record checks

The Chartered Institute of Taxation (CIOT) has expressed some concerns about penalties: taxpayers could be penalised twice.

Keeping and preserving records - up to £3,000

  • A person may be fined up to £3,000 if he fails to keep and retain any records.

Fines are scaled as follows:

  • If at a follow up visit HMRC find that your records have still not improved to an adequate standard, a penalty will apply. The penalty is usually £500 for the first offence. For businesses in their first year of trading the penalty will be £250.
  • If during the business record check HMRC find that you have deliberately destroyed your records, a penalty of £3,000 would apply (this may be reduced to £1,500 if only some of your records are destroyed).

Tax pitfall: the difficulty here is that the above "keeping and preserving" penalty can only be charged if the records are inadequate, and a tribunal can only determine that records are inaccurate if one is unable to complete a return from them. So in reality until a return has been completed the true nature of the record keeping (and preserving) cannot be determined.

Once a return is show to be deficient, a further penalty may apply.

Error or mistake - up to 100% of tax lost

  • If a BRC is announced and the taxpayer reveals that there has been an error or omission in any of its past tax reporting it may be that the taxpayer is treated as being “prompted” into reporting its error.
  • The significance of the prompt is that prompted errors are subject to higher tax geared penalties.
  • Given the general nature of a BRC, there may be situation where it may be claimed that the BRC did not trigger the disclosure. It may be difficult to prove that.
  • See Tax penalties: errors in returns and documents