SMEs warned over business records checks

THE TAXMAN’S approach to small business records checks has undergone a “subtle change in tone” from being an educational exercise to a compliance check, advisors have warned.

HM Revenue & Customs yesterday released the summary of responses to its consultation on the business records checks initiative. It said that “business records checks are primarily a compliance check, not an educational exercise”.

However, Guy Smith, senior tax consultant at Abbey Tax Protection, said that this represents a “subtle change” from the way it was originally being sold to advisors.

In letters sent to businesses as part of a pilot, HMRC recommended areas of improvement for record keeping and informed the companies that they might receive visits within three months to check the improvements have been made, Smith added.

“Up until now, the underlying theme has been one of informed education,” he said. “However, that now seems to have changed with the publication of the summary of responses report.”

The consultation said: “A policy of not charging a penalty for an initial finding of significant record keeping failure would risk creating the perception that there is no need to change behaviour in relation to poor record keeping unless and until one has been caught out at least once.”

But this is in contrast to the consensus among respondents, Smith said, which favoured giving respondents time to make improvements and issuing first warnings.

Mike Down, tax partner at Baker Tilly, said that the initiative “has always been a mix of educational awareness and compliance checks”. But there are still issues about whether this is a good use of resources and how well publicised it has been.

Down also said that the Taxman “jumped the gun” on the pilots. “The summary of responses said the pilot scheme began on 4 April but the first letter was sent out on 21 March. They jumped the gun. The original consultation said it would start in the second half of 2011.”