HMRC assault on small and medium sized businesses

HMRC’s random enquiry programme indicates poor record keeping in 40% of all SME cases.

The ability for any business to demonstrate complete and correct returns of tax relies heavily on retaining adequate and accurate business records. HMRC have concluded that research conducted by the Organisation for Economic Cooperation and Development (OECD) indicates poor business record keeping as responsible for a loss in tax in up to 2 million Small and Medium sized businesses each year.

In response to these conclusions, HMRC have announced that this year they will launch “Business Records Checks” designed to establish whether an organisation is able to accurately assess all tax liabilities due. Using existing powers provided by Schedule 36 Finance Act 2008, some 50,000 businesses will receive visits each year.

Where businesses demonstrate less than satisfactory business records, a further penalty of up to £3,000 in addition to the unpaid VAT, direct tax, National Insurance, interest and tax penalties arising could be levied against the business.

Whilst HMRC have suggested that the additional £3,000 penalty is only imposed “in the most serious cases” the anticipated extra revenue arising from this initiative is stated by the Treasury as £600 Million over four years. It is interesting therefore to note that 50,000 cases over four years would result in 200,000 cases yielding exactly £3,000 more per review which would suggest that the new penalty levy is likely to become a reality in almost all cases.

Should you wish to determine how your records in relation to employment taxes and beyond are likely to be viewed by HMRC then please contact us. Our business reviews are conducted by former HMRC personnel who are well placed therefore to provide you with an insight into the attitude and working practices of HMRC to avoid not only unpaid tax and NIC arising, but also help determine whether business records will satisfy HMRC’s new initiative.