In late 2012 HMRC refreshed its approach to record checking when it launched its Business Record Check (BRC) programme following a pilot the previous year. This programme was introduced to ensure that small and medium businesses are keeping adequate statutory business records and paying the right amount of tax at the right time.
Of the 250 companies who had a business record check during the pilot 36% had some issues with their record keeping and 10% of those demonstrated issues serious enough to warrant a follow-up visit. A review of the pilot found that the programme was effective in improving the record keeping practices of smaller businesses, and should be rolled out as part of HMRC’s approach to compliance.
What’s the process?
HMRC send businesses at most risk of having inadequate records a letter to arrange a telephone questionnaire about their record keeping habits.
Depending on what they discover during the call, HMRC will either tell the business that no further action is required, or if they identify some issues they’ll be offered some self-help education options to improve their record keeping. More serious cases will be referred for a business record check visit.
So, what do you need to do to help avoid a business record check visit from HMRC?
Do your paperwork – don’t keep putting it off!
You really should be keeping good business records for your own benefit, not just to keep HMRC at bay. It’ll help you understand where you are in your business and enable to pinpoint where there’s an opportunity or a problem. It’ll also mean that you are well prepared should HMRC come knocking on your door.
It’s critical that you do the following:
– Ensure that your bank account balances with your accounts
– Keep copies of invoices sent out and a record of all money received
– Keep receipts for all costs in your business – most of the time it’s ok to keep scanned copies
– Keep a record of all card and cash sales, if your business deals in these kind of transactions.
Do what you can to avoid an automated HMRC business record check
Errors and unusual activity in your tax records or accounts could highlight you as a case for an HMRC business record check review, so it’s essential that you make sure that your books are as straightforward and error free as possible.
Some HMRC business record checks are entirely random and can’t be avoided, however most are triggered by data mining tools run by HMRC’s central risk team, who use them to identify unusual activity or trends in accounts or industries. So for instance, if a business appears to be involved in an activity that isn’t their core business then they may be flagged for potential review.
If you know there’s an error in your books that you’re hoping will disappear (but know deep down that it won’t), it’s probably time to take the bull by the horns and ask your accountant to take a look at it or approach HMRC for advice on how to rectify the situation.
Also, if your accounts and tax are keeping you awake at night or if you’re finding that you’re regularly making mistakes then it might be a good idea to ask your accountant to take on a bit more of your day-to-day book and record keeping activities. This will free you up to concentrate on running and making a success of your business, and it’ll take a huge weight off your mind knowing that this incredibly important aspect of your business is being looked after by an expert. It also help you avoid being targeted for a business record check.
Get your returns into HMRC on time
Another factor that might trigger a business record check is if you send a late tax return to HMRC. It’s therefore critical that any paperwork you do file with them is sent on time and is as complete as possible.
One of the biggest benefits of keeping neat, tidy, up-to-date business records (other than staying on the right side of HMRC that is) is that you can use the intelligence to improve the success of your business, and can put your hands on up-to-the-minute information that will allow you to spot opportunities or tackle problems head on without waiting until the month or even year-end to see how your business is doing.
If HMRC do get in touch with you to organise a Business Record Check then the following link will give you some HMRC information on what to expect http://www.hmrc.gov.uk/dealingwith/bus-record-checks.htm. And if you’re in any doubt about what they’re requesting from you or need some advice, then get in touch with your accountant.