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50,000 Businesses to Get Record Check from HMRC

Guy Rigby Tuesday, 20 September 2011.

50,000 Businesses to Get Record Check from HMRC

The government's drive to make businesses tidy up their tax and record keeping is moving up a gear. Having carried out a pilot scheme earlier in the year, it is now beginning to contact firms to check that all tax related records, from VAT to PAYE, NIC, corporation tax, expenses and any other taxes are 'adequate and accurate'.

This initiative will target small and medium sized enterprises (SMEs). HM Revenue & Customs will begin by contacting businesses in London and Anglia and then move on to other parts of the country through the next few weeks.  Recently established businesses are among those most likely be approached.

"HMRC announced that they were planning these checks some months ago so there has been plenty of warning, but the taxman is now starting this project in earnest,” warned Tim Lyford head of corporate tax at Smith & Williamson the accountancy and investment management group.

Tim continued: “In practical terms, HMRC will expect to see that a business is keeping full and accurate records of its invoices, receipts, petty cash, general expenses and so on. They may ask to see diaries to correlate expenses, for example.”

“This is the first time that the tax authorities will be looking at records for the current year. Until now, HMRC has only scrutinised a firm’s tax affairs if it thinks the business has filed an inaccurate return and is paying too little tax. This new approach heralds a sharply toughening attitude to business record keeping by HMRC.”

Earlier this year, HMRC estimated that some 2 million SMEs keep inadequate tax records. To encourage people to get their records in order, HMRC issued a range of advisory information which is available at www.hmrc.gov.uk and it will be looking to see that firms have applied this advice.

“The programme will apply to both new and established businesses and so it will be of concern to millions of businesses up and down the country.”

“Business owners should take these warnings seriously. If they don’t keep good records, they may be unable to substantiate tax returns and so would have difficulty in proving their figures are correct, should HMRC take issue with them. Failure to comply will lead to fines and closer inspections."

As a basic minimum, business people need to be organised and methodical in their record keeping. Top five tips include:

  • Keep safely: retain records going back at least six years.
  • What to keep: invoices, bank statements, paying in books, details of purchases, expense details and so on.
  • Personal vs. business: anyone who makes a claim for the use of assets which they use personally as well as for the business - a car being a typical example - must be scrupulous in allocating personal and business usage and have the necessary supporting paperwork to back up their claim.
  • Be regular: keep on top of your expenses and record keeping. This will make it easier and more accurate. Also, HMRC is more likely to believe contemporaneous records.
  • Avoid estimates: if you have to estimate an amount, make sure you can provide suitable evidence.

For further information, please contact Tim Lyford, head of corporate tax on 020 7131 4213.

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Guy Rigby

Guy Rigby

Guy is an experienced chartered accountant and an entrepreneur. A natural and driven enthusiast, he built and sold his own accountancy firm, as well as pursuing other commercial interests. He has been a director and part owner of a number of different companies, including businesses in the IT, property, defence, manufacturing and retail sectors.

Guy joined Smith & Williamson in 2008 and leads the entrepreneurial services group. His day to day activities include advising entrepreneurs and their businesses and coordinating Smith & Williamson's activities in this increasingly important market.

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