By Daniel Hunter

HM Revenue and Customs has this week launched its re-designed Business Record Checks. Part of the Government’s strategy to close the tax gap, the UK-wide initiative will be rolled-out in the South East on 14 January 2013. The checks will confirm whether businesses are keeping adequate records covering the full range of taxes.

“We expect HMRC to take a particular interest in small business owners. Mid-January is only seven weeks away if you take into consideration the Christmas break, so businesses that could be affected need to establish procedures now to ensure they are ready for inspectors to review their records,” Head of VAT Services Ruth Corkin from accountants and business advisers James Cowper said.

“Visits by HMRC inspectors were previously few and far between but enquiries appear to be up by around 20% this year as they have realised that by not visiting businesses the amount of tax collected had diminished. It’s clear from the announcement that HMRC is determined to make a strong start with small businesses in 2013 and there can be no doubt that some will face stiff fines down the line.”

The new checks will feature a greater emphasis on education and support. Letters to businesses HMRC believes may be at risk of keeping inadequate records are being sent advising that the taxman will be phoning them to discuss their business records.

“The call will take the customer through a set of questions to assess the customer’s record-keeping affairs," Ruth explained.

"Depending on the outcome, HMRC will then decide whether the customer could benefit from support and whether a Business Records Checks visit is necessary. Last year a pilot programme produced results suggesting that over a third of businesses will be deemed by HMRC to need help.

“Where a visit reveals the customer is keeping inadequate records, HMRC will provide guidance. They will then arrange a follow up visit giving the business time to make the necessary improvements to their processes. A penalty may be charged if, on the second visit, the records have not improved to an adequate standard.”

Ruth gave this advice to businesses concerned about Business Records Checks: “At a basic level firms need to ensure that all their books and records are in order. This could appear obvious but there is nothing more suspicious to a VAT inspector, for example, than someone who has no idea where the VAT return figures come from. When teams from James Cowper visit small businesses we often see examples of invoices not addressed to the right person, clients not doing partial exemption adjustments, sales not being reconciled, and the lines being blurred between personal and business assets.”

Inevitably, these enquiries by the taxman come with a price tag. Few business owners are confident enough to handle an inspection, as many have no experience of them and some have had bad experiences, and so require input from a specialist. For some businesses tax enquiry insurance can provide an answer.

Ruth explains: “There are insurance policies that cover enquires for tax and VAT and businesses can save significant fees as a result of having such a policy. However, although they ensure attendance at the inspection by a specialist, the policies do not usually cover existing enquiries, or future ones that can be linked to an enquiry in existence when the policy was taken out.”

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