 Will businesses see red over the taxman’s new records checks?
20 July 2011: The traffic light system that HM Revenue & Customs (HMRC) is using as part of its new ‘business records checks’ initiative is misleading and likely to impose unnecessary burdens on business owners, according to PKF Accountants & business advisers.
Business records checks are currently being piloted but will be rolled out to 50,000 SME businesses each year from this autumn.
The letters that HMRC will send after conducting a business records check will use a green, amber or red colour code to classify the company’s records, depending on whether they are ‘adequate’, ‘could be improved’ or ‘not adequate for the nature and size of the business’. In an amber or red letter, HMRC will suggest the recordkeeping areas that the business should improve.
John Cassidy, tax investigation and dispute resolution partner at PKF, comments: “Businesses are legally required to keep sufficient records to enable them to complete accurate tax returns but the law does not include a general requirement that records are ‘adequate for the size and type of business’. HMRC will be looking at current records, so how can inspectors possibly conclude that the records are not adequate to enable an accurate tax return to be prepared before any tax return has been submitted?
“These letters suggest that the business record checks will be superficial at best and, at worst, could easily mislead business owners – HMRC is trying to ‘gold plate’ the rules for its own ends."
“HMRC officers may well take the same sort of tick-box approach to deciding what sort of records are appropriate for a business to keep but, ultimately, that is a decision for the owners and directors to make. For many businesses, simple paper records written up every few months - or even annually - may be perfectly sufficient provided they are accurate. This was recognised by HMRC when it originally announced its plans for business record checks but seems to have been forgotten now that such checks have gone live. HMRC is likely to want to see a formal recording system using business or standard software that is kept constantly up to date."
“There is also a danger that businesses receiving red letters will be added to one of HMRC’s risk lists and may face a formal tax enquiry in the future - even if their tax returns are perfect."
“Although business records checks are designed to help businesses, they look more like an excuse for HMRC to snoop into records and look for arguments for charging spurious penalties. The checks also rely on HMRC asking business owners a lot of questions about their operations, something which visiting inspectors have no power to do."
“HMRC must improve both its approach and its follow-up procedure before records checks are rolled out nationwide. Otherwise, it will end up wasting people’s time, worrying them unnecessarily and raising unjustified enquiries into well run businesses.”
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For further information, please contact: Andy Konieczko, 020 7065 0537, andrew.konieczko@uk.pkf.com or Jane Soares, 020 7065 0135, jane.soares@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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