Earlier this year HMRC unexpectedly launched a pilot scheme as part of their checking of business records of small and medium sized enterprises. This was focused on eight areas – Edinburgh, Irvine, Sunderland, Liverpool, Manchester, Stockport, Sheffield and Portsmouth.
The results of these visits, thus far, is that the Revenue has found that 44% of firms had issues with their record keeping, whilst 12% had seriously inadequate records.
By the end of the year ended 5th April 2012, up to 12,000 checks will be completed with another 20,000 checks planned for the following financial year. Originally, HMRC's business plan was for 20,000 visits to be completed by March 2012, increasing to 50,000 by 2013.
The scheme has now been extended to key areas of the UK and to facilitate this expansion the number of staff employed on the checks will increase from 30 to 120.
Penalties of up to £3,000 for poor record keeping will, for the time being, only be imposed in the most extreme cases. Guidance will be published in time.
The Chartered Institute of Taxation has expressed concerns about how HMRC judge the adequacy of records and that there are misunderstandings within the Revenue as to the interpretation of adequate and incomplete records. For example, HMRC originally indicated that a full shoebox of invoices and receipts was adequate but now considers such to be inadequate if purchase invoices are not also listed, regardless of the size of the business.
HMRC argues that the Business Records Check programme is about supporting businesses and reducing the tax gap and by getting businesses to keep good records then they will pay the right amount of tax at the right time and thereby avoid interest and penalties.
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