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HMRC’s consultation on Business Records Checks

It is unlikely that the late, great, Gerry Rafferty had business record keeping in mind when he penned the lyrics, “If you get it wrong you’ll get it right next time” but HMRC seem to have adopted this as their rally call in their recent consultation on ‘Business Record Checks’ that is due to end on 28th February.

Ahead of its planned campaign of business records checks of small and medium enterprises (SME’s), HMRC is inviting comments on how to best implement this programme with a view to achieving a major improvement in the standard of record keeping amongst SME’s. HMRC intend to check the business records of up to 50,000 SME’s annually, starting in the second half of this year. A SME is defined as a business with a turnover of less than €5 million and less than 250,000 employees. 

HMRC estimate that 2 million SME’s business records fall below standard leading to under-assessment of tax and they hope to raise £600 million over the first 4 years of these checks.

Whilst HMRC already have existing powers to review business records, legislation has created an anomaly. S. 12B(5) Taxes Management Act 1970 imposes penalties for failure to keep proper records, with the maximum being £3,000. There is, however, no scope to suspend such a penalty unlike Sch 24 Finance Act 2007 that allows penalties for inaccurate tax returns arising out of record keeping failures to be suspended. A simple solution might be to amend S. 12B(5) to allow suspension of penalties but HMRC do not appear to be keen on such a proposal preferring instead to use a stick to change taxpayers behaviour.

Having decided on a policy of penalisation HMRC have invited proposals for the penalty tariff, in particular, what should the minimum penalty be to encourage proper record keeping and should the tariff be same for everyone? The consultation document makes the point that a ‘one size fits all’ penalty might mean that a sole trader with significantly inadequate records would be charged the same penalty as a business employing 20 people whose records were equally inferior.

Selection for a Business Records Check will be on the basis of risk assessment and industry targeted. Cash businesses are therefore likely to be strong candidates for review. There will however be a small proportion selected at random to verify the worthiness of the checks and to help improve risk assessment criteria.

Guidance on record keeping already exists with the most recent publication being in October 2010 – ‘Keeping records for business’. HMRC have given assurances however that the Business Records Checks programme will not begin without first allowing taxpayers a reasonable period of time to bring their records up to standard with penalties only being imposed for significant failures occurring after the end of that period.

Responses to the consultation document are likely to be published at the end of March.


By Andy Vessey


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