Bye bye Business Records Checks

HMRC announces end of record-keeping visits

Business Record Checks (BRC) are a compliance procedure used by HMRC to confirm that a business is keeping sufficient information on its income and expenses to produce an accurate tax return.

How checks are carried out

First contact
In the first instance HMRC will write to the business and ask the taxpayer to telephone them to discuss their records. During a 10 – 15 minute telephone conversation HMRC ask questions to help them decide if proper business records are being maintained. From the replies given, the HMRC officer:

  • will assess whether the taxpayer is likely to be able to submit an accurate tax return from their records

  • will tell the person and confirm in writing, if no further action will be taken;

  • may feel the business could do with some additional help and support and, if so, provide the person with a link to help and support the businesses

  • may decide the business is at risk of keeping inadequate records and therefore requiring a face to face visit

Visits
When HMRC turns up at the taxpayer’s premises to carry out a BRC it usually takes around 2 hours.

An officer will then:

  • ask for an explanation as to how the business is run;

  • note how business records are kept

  • check a sample of the current business records – usually for the last 4 months; and

  • arrive at a decision about whether the business records are adequate or not.

If the records are adequate, the Revenue will tell the taxpayer at the visit and then confirm it in writing a few days later. This signals the end of the BRC.

If however, HMRC consider the record keeping needs improving, they’ll discuss this with the taxpayer and advise how to make the records adequate and what will happen next. Sometimes a record-keeping penalty may be imposed but before this happens a business is given the chance and more time to bring them up to an adequate standard. A follow up visit then takes place 3 months later and if the records are deemed to have improved then the penalty is reduced.

Conversely, if at the follow up visit HMRC find that the records have still not improved to an adequate standard, they will apply a penalty. The penalty is usually £500 for the first offence. For businesses in their first year of trading the penalty is £250.

In cases where HMRC find inadequate records they’ll refer the business for another BRC visit in 2 years time. If the records are again found to be inadequate a fresh penalty is levied.

Where HMRC identify that a person’s tax returns may be inaccurate during the BRC, the visiting officer will pass that person’s details to other HMRC teams for follow up investigation.

By October 2013 around 29,000 businesses had been the subject of the BRC programme but not one of those businesses suffered a penalty for inadequate records.

BRC’s have been criticised for being ineffective and poorly targeted and now the penny has dropped and HMRC have decided to scrap them.

Andrew Gotch, Chairman of the Chartered Institute of Taxation’s Owner Managed Business Sub-Committee, commented:

“This announcement is a victory for common sense……………..HMRC themselves acknowledge this initiative has not proved a cost-effective way of achieving the desired result. Despite efforts by HMRC to identify businesses at ‘high risk’ of having inadequate records most of those they called on were found to be keeping records to an acceptable standard. The evidence is that records are being kept to an appropriate standard by most small businesses in the UK.”

Mr Gotch warned, “Scrapping Business Record Checks does not mean HMRC are going to get laxer on tax compliance by small business. It remains crucial for businesses of all sizes to keep records up to date and in good order. This is likely to become even more important as HMRC bring in digital tax accounts, which may require businesses to submit data more frequently.”

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