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HMRC to Target Small and Medium Sized Enterprises in 2011

HM Revenue and Customs have such serious concerns over the quality of record keeping by small and medium sized enterprises that they are planning a programme of ‘Business Record Checks’ (“BRCs”) to commence in 2011.

They have recently published a consultation document seeking opinion on how the program should be implemented and how it can be made most effective.

Concerns and objectives

HMRC’s current policy of random enquiries indicates that poor record keeping is a problem in approximately 40% (around 2 million) of all SME cases, and research indicates that this generally leads to a loss of tax on an annual basis.

As a result HMRC have announced, in their consultation paper, that they intend to use their existing powers to check business records in up to 50,000 cases annually starting in the second part of this year.

They will impose penalties for significant failures with the aim of improving record keeping across the SME population and reducing the tax loss to the Exchequer.

The Benefits

If you are a business owner don’t be alarmed (!) as HMRC list the following ‘Customer Benefits’ of the BRC Scheme:

• The opportunity during a record check for customers to ask questions and seek clarity about their record keeping obligations.
• A reduced likelihood of a future enquiry for those seen to be complying
• Improved financial management (eg keeping better track of debts and debtors) leading to
• Improved chances of business success (!)

The Consequences

The law provides that those who fail to comply with record keeping obligations are liable to a penalty ‘not exceeding £3,000’.   HMRC’s policy to date, however, has been that this penalty should only be imposed in the most serious cases.

A large part of the consultation document seeks views on the minimum level of penalty to encourage improved record keeping and the efficiency of this as a lever to change behaviour.

HMRC clearly have high hopes for this new initiative as they aim to bring in £600m over the next four years.

If you do not want to find yourself contributing to this latest money spinner, have any particular concerns or would like more information regarding record keeping obligations please contact Richard Murrall on 01952 211046 or email richard.murrall@lblaw.co.uk or Ruth James on 01952 211008 or email ruth.james@lblaw.co.uk.