SMEs face potential penalties on accuracy of records

HMRC are planning a programme of checks that will review the adequacy and accuracy of records kept by small and medium-sized enterprises. The programme will use existing law regarding both record-keeping requirements and penalties for failure to comply, with sanctions imposed for significant failures. The Revenue says it conducted a random enquiry programme that indicated poor record-keeping is a problem for 40% of SMEs. The department has issued the consultation document Business Records Checks to discuss the implementation of a new programme. The campaign would begin in the second half of 2011, with around 200,000 small businesses being selected for one of the new checks. HMRC expect to raise £600 million over its first four years.

Information powers legislation introduced in 2008 already enable the Revenue to carry out real-time examination of records, but the mooted initiative is nevertheless worrying for small firms, said Baker Tilly’s Mike Down. He added, ‘The new checks will be risk-assessed, and industry sectors will be targeted where HMRC has identified general problems in the past. This is likely to result in cash businesses experiencing even more robust and intrusive investigation than previously.’

Mr Down questioned how the taxman had arrived at the figure of £600 million in tax to be recovered. The consultation throws up a number of questions, said Mike. 'For example, do HMRC have the resources to carry out so many checks? Will penalties for direct and indirect taxes be harmonised?' He expressed particular concern that checks would have a burdensome effect on small firms without accountants, because they are likely to be more prone to haphazard record-keeping.

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