HMRC’s Business Record Checks are back!

HMRC’s Business Record Checks are back!

Last year HMRC devised and began testing a new compliance procedure – Business Records Checks (BRCs). The aim was to visit smaller businesses and identify those that are not keeping adequate records and levy penalties where appropriate.

A pilot programe of BRCs began in April 2011. This involved checks by HMRC on the adequacy of Small and Medium-sized Enterprises’ (SMEs) statutory business records. SMEs are businesses with an annual turnover below £30 million who employ less than 250 people.

Up until 17 February 2012, 3,431 BRC had been carried out. These found that 36 per cent of businesses had some issue with their record-keeping of which 10 per cent had issues serious enough to warrant a follow up visit.

Following a review, HMRC announced a fresh approach to its pilot BRC programe on 3 February 2012.

The review of the pilot programe, which included discussions with trade and professional bodies’ representatives, found clear evidence that the programe was effective in improving record-keeping practices amongst SMEs. However, it recommended that the checks were better targeted in future, and linked to wider education and support activities.

In order to implement the review’s recommendations all new BRC activity was paused from 3 February to 31 October 2012 to allow HMRC to redesign the BRC process.

As a result HMRC has now announced that BRCs will be re-launched from 1 November 2012 following a complete review of its approach.

The roll-out of BRCs will be done region by region, over a 14-week period beginning on 1 November 2012 and ending early in 2013.

BRCs are a four-stage process, which is summarised below.

1.   The first stage is that HMRC’s computer-driven risk analysis produces a list of cases for possible BRCs. BRCs will therefore only be targeted at businesses where HMRC perceives some risk that records may be inadequate

2.   An HMRC Compliance Centre will write to those on the list saying that they are being considered for a BRC and that the writer will phone them a week later to ask a few questions. In a phone call lasting between 10 and 15 minutes HMRC thinks that its questions can identify who is likely to need a BRC. Most of those phoned will not get one. Some may be offered support and advice on keeping records. The minority will get a visit.

3.   A BRC visit is not intended to identify whether the records are good or even reasonable. HMRC’s concern is whether they are adequate to enable a correct and complete return to be prepared. If HMRC thinks that the records are inadequate the officer will explain at the visit why he or she thinks so. If the taxpayer disagrees they will have an opportunity to explain why they think the officer is wrong. If they cannot convince him or her, there will be an informal internal appeal route for the taxpayer to try to convince another HMRC official that the records are adequate.

If during the business records check HMRC finds that the taxpayer needs to register for VAT, PAYE or the Construction Industry Scheme they will pass the details to the appropriate team.

4.   If it is accepted that the records are inadequate HMRC will make a further visit around three months later to check that changes have been introduced and that these meet its concerns. If no changes have been made, or the changes are clearly not going to satisfy the concerns, HMRC will consider imposing a record-keeping failure penalty at that stage. This will normally be £500 for the first offence, though for businesses in their first year of trading it will be £250. If during the BRC HMRC finds that the taxpayer has deliberately destroyed records, a penalty of £3,000 would apply (or £1,500 if only some of them had been destroyed).

In cases where inadequate records are found, HMRC will refer the taxpayer for yet another business records check visit in a further two years time. If the records are again found to be inadequate a new penalty will be levied and the process will continue.

Full details are on the HMRC website. Click here

It is suggested that any taxpayers approached by HMRC should invite their accountants to the visit in order to ensure fair play.

For more information please contact us on 0845 365 1000

Robyn Hughes