The programme uses on-site visits to 'encourage' businesses to keep better records, and keep them up to date. The checks are intended to help and encourage small and medium sized enterprises to improve the standard of records they keep. This then helps them to send correct returns to HMRC. However, the scheme has received much criticism for the potential of being too heavy-handed when dealing with what were genuine mistakes. At one point the programme was even withdrawn, while HMRC conducted a review of it (See: Small firms warned as spot checks on record keeping return - Nov 2012)
Now, HMRC seems to have responded to concerns that it should educate rather than penalise small firms for poor record keeping. HMRC said that those businesses whose records were not adequate on first inspection, and who received follow up visits, all improved their record-keeping standard and that they have not had to charge any penalties - one area which drew the most criticism
In the latest phase of BRC, many of the customers contacted by HMRC have been keeping records correctly. Now HMRC has said that it wants to explore how to better target this activity.
From today (November 4, )2013, HMRC's BRC activity in the Edinburgh, Glasgow, Leeds, Bradford and Stockport areas will explore new ways of using the checks. As part of this, HMRC will evaluate new risk processes and ensure new approaches are cost effective and fit with its wider compliance activity.
HMRC will also work with tax agents’ representatives to review the benchmarks of what good record-keeping should be.
For customers outside the development areas HMRC will continue with existing BRCs until they are completed. This means:
- if you have received a letter dated on or before 23 October 2013, HMRC will still contact you by telephone to ask you to complete an initial telephone questionnaire
- if HMRC has not yet booked a visit with you, they will offer you the opportunity to get advice on keeping business records from Help and support for businesses' where there iss further guidance on record keeping
- if HMRC has already booked a visit, they will offer you the option of advice on keeping business records from the 'Help and support for businesses' options;
- if you are waiting for a follow-up visit, this will still go ahead.
The professional tax bodies have been at the forefront of the criticism of HMRC's previous approach and now are first to welcome the shift in emphasis towards education to improve standards rather than punishment.
Yvette Nunn, President of the Association of Taxation Technicians (ATT) said: “Good record keeping is in the interests of businesses, their advisers and the authorities. Tax professionals and HMRC should work together to educate those running small businesses on good practice in this area.
“At the start of the original trial in 2011, the ATT remained unconvinced about HMRC’s assumption that 40 per cent of SME businesses had inadequate records and we were initially concerned that BRCs were a thinly disguised attempt to raise revenue. HMRC’s subsequent low success rate in the last two years in identifying businesses with inadequate records despite various changes of approach meant that they were classically between a rock and a hard place. To continue with the programme would look like obstinacy, whilst significantly changing it may have looked like undoing a big thread of HMRC’s tax compliance strategy.
“The main problem for HMRC has been in identifying the businesses where records checks are required. Far too many businesses have been identified as having risk factors which justified HMRC in including them in the BRC programme. Hounding these businesses would have been a waste of time for HMRC and an unwelcome and unnecessary intrusion for many of the businesses concerned.
“To their credit, HMRC have responded positively to criticism and worked with the ATT and other professional bodies to refine their approach to BRCs. As HMRC acknowledge, tax agents already do much to improve their clients’ record keeping. It is good that HMRC wants to work with us to improve standards. We are also looking forward to working with HMRC to review the benchmarks of what adequate record-keeping should be.”
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Susie Hughes © Shout99 2013