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April 2011
HMRC Told ‘Go Back to Drawing Board’ on Record-Keeping Drive
A proposal by HM Revenue and Customs (HMRC) to start making large-scale checks of business records before relevant tax returns are submitted is misguided, according to the Chartered Institute of Taxation (CIOT).
HMRC is proposing to use powers in the Finance Act 2008 to check the business records of up to 50,000 SME businesses annually, beginning in the second half of 2011, and to impose penalties for poor record keeping.
Anthony Thomas, CIOT deputy president, said the CIOT supported efforts to improve business record-keeping.
But he added: “We do not believe this project will meet that objective. Its purpose seems to be more about raising money through penalties than about helping businesses improve their systems.
“HMRC are putting forward a blunt instrument designed to deliver punishment when what is needed is a collaborative process focused on providing education, guidance and support. We think they need to revert to the drawing board on this.
“We think that the legal basis for levying penalties as a result of such a check prior to submission of a return is questionable unless there is a failure to keep any records at all or there has been a failure to preserve them.
“A penalty should only be levied once it has been proved that the bookkeeping records have led to an incorrect return.”
HMRC says that although keeping adequate and accurate business records allows businesses to comply properly with their tax obligations, its random enquiry programme suggests that poor record keeping is a problem in around 40 per cent of around five million SME cases.
With research indicating that poor business record keeping generally leads to an underassessment of tax, HMRC estimates that it could be losing out on tax payments in up to two million SME cases each year.
