Accountants may be relieved to hear that HMRC has postponed its campaign to check the records of small businesses.
The Revenue had been running a pilot scheme to check whether SMEs were keeping accurate, up-to-date business records, but this has been put on hold as it has been suggested that record-keeping can be improved through education.
The pilot launched last April, and since then almost 2,500 businesses have had their records checked. Inspectors discovered that around 28% of the businesses they visited had book-keeping issues and a further 11% had issues that were serious enough to merit another visit.
However, when HMRC reviewed the pilot, it discovered advisors were very concerned about the scope and timetable for the introduction of the scheme. There has been a general consensus that business record checks may have been acceptable if agents and contractor accountants had been given a longer lead in time to prepare their clients.
Richard Summersgill, director of local compliance at the Revenue, explained that 40% of businesses were found to have problems with their records. 90% of those that did need a follow-up visit improved their record keeping.
However, he acknowledged that HMRC now needs to adopt a fresh approach. Business records checks benefit both the company and the Revenue. The businesses will be able to pay the right tax and HMRC will have greater assurance that the tax returns they submit are correct.
Until a new strategy is devised, visits will be restricted to follow-ups and those already booked.