HMRC “massively understates” spot checking costs

PLANS TO spot check small and medium enterprises’ record-keeping could cost the taxman ten times more than it has estimated, the Institute of Chartered Accountants of Scotland (ICAS) has claimed.

HM Revenue & Customs is currently consulting on proposals to visit 50,000 SMEs a year to check the adequacy and accuracy of their business records. It has estimated the cost of each half day visit to the businesses at around £54.

But ICAS has claimed that this estimate is “massively understated”. It has re-costed the figure at over £560 using “realistic estimates of business disruption and adviser’s time”.

Ian Dewar, Convenor of the ICAS Small Business Tax Sub-Committee, said that poor record keeping often results in businesses paying too much tax, contrary to “HMRC’s basic assumption” that “SMEs with poor records have chosen to have poor records”.

He added: “HMRC should be looking for positive ways of encouraging taxpayers to maintain adequate records, rather than adopting a big-stick approach that we believe will cost owner managers a lot of resource that could have been better directed towards growing their businesses.”

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Fiona Westwood of Smith and Williamson.