 HMRC visits to check business records will waste everyone’s time
22 September 2011: HM Revenue & Customs’ (HMRC) new campaign to check the records of 12,000 businesses before next April will waste everyone’s time and will not help to close the current £35bn tax gap, according to PKF Accountants & business advisers.
After a controversial pilot exercise, HMRC has announced it will now be rolling out business record checks and visiting or contacting up to 20,000 businesses each year to assess if their current records are up to date and ‘adequate’. It claims the results of its pilot show that 44% of those visited had incorrect records with 12% having ‘seriously inadequate records’. HMRC has powers to charge a penalty of up to £3,000 for businesses that have kept inadequate records - but to do so, it must be able to prove that this led to the owner submitting an incorrect tax return.
John Cassidy, tax investigation and dispute resolution partner at PKF, says:
"There is no proof that a visit from a tax inspector during the year will result in the tax return that a business completes after the tax year has ended – many months later in most cases – being any more accurate.
"It is unlikely that even businesses which are identified as having ‘seriously inadequate records’ for the current year will face a record-keeping penalty straight away because HMRC cannot prove that their future tax returns will be wrong. Of course, such visits might be used to fish for information that gives HMRC reason to doubt past tax returns and lead to a tax investigation into them, but that is not supposed to be the purpose of this exercise."
Each check will involve discussions with the business owner and the gathering of information on what records are kept and how they are kept (e.g. notebook, spreadsheets or accounting software). While HMRC has powers to enter a business’s premises and inspect documents (including computer records) it cannot force the business owner to answer questions on them.
John Cassidy says "These visits are bound to worry business owners and waste their time. In theory, you could just sit the inspector down in a room with your records and let them get on with it: HMRC officers are not allowed to go beyond the records and start searching the business premises. But would you be prepared to leave them alone in your office?
"I’m sure that the 120 staff to be employed in this exercise could be put to much better use. If HMRC is going to go to all the trouble of sending inspectors out to see businesses, it should focus on activities that will bring an immediate cash return. Its own tax gap records show a rise in PAYE errors and underpayments by businesses yet our experience shows that its traditional PAYE compliance visits have virtually stopped. Such visits often resulted in the inspector walking away with a cheque for an immediate payment of arrears – something the Treasury might appreciate at the moment."
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For further information, please contact:
Andy Konieczko, 020 7065 0537, andrew.konieczko@uk.pkf.com
Notes to Editors:
1. PKF (UK) LLP is a leading firm of accountants and business advisers with more than 1,500 partners and staff operating in 23 offices in the UK mainland firm, incorporating a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk
2. PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Channel Islands) Limited is incorporated in Guernsey.
3. PKF (UK) LLP is a member firm of the PKF International Limited (PKFI) network of legally independent member firms. The PKFI member firms have around 2,200 partners and more than 21,000 staff in around 125 countries.
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