Pictured above: Sarah Moss
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.
Sarah Moss, tax 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.
John Cassidy, tax investigation and dispute resolution partner
at PKF, comments:
"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."
For more information about PKF, please visit their website here:
www.pkf.co.uk