HM Revenue and Customs (HMRC) has signalled its determination to make businesses improve their record keeping by launching its programme of inspections earlier than expected.
HMRC will be seeking confirmation that businesses are maintaining ‘accurate and adequate’ business records covering the full range of taxes including VAT, PAYE, NIC and corporation tax.
HMRC will expect to see that a business is keeping full and accurate records of its invoices, receipts, petty cash, general expenses and so on.
Inspectors will be looking at records relating to the current year and potentially go back six years. Failure to comply with HMRC’s standards will lead to further inspections and some organisations will face fines.
This is the first time that the tax authorities will be looking at records for the current year. Until now, HMRC has only scrutinised a firm’s tax affairs if it thinks the business has filed an inaccurate return and is paying too little tax. This new approach heralds a sharply toughening attitude to SME record keeping by HMRC.
In February, HMRC estimated that some 2 million small to medium enterprises (SMEs) keep inadequate tax records. It published guidance at www.hmrc.gov.uk and is now following up by finding out how well firms have applied this advice.
Business owners need to take the threat of inspection very seriously. If you don’t keep good records, you may be unable to substantiate tax returns and might end up with an extra tax demand and even a fine.
Every business needs to keep accurate business and financial records. Here are our top tips:
- Keep records going back at least six years.
- Always keep copies of invoices, bank statements, paying in books, details of purchases, expense details and so on.
- Be careful in allocating business vs personal use on things like a car or usage of home as an office. You’ll need supporting paperwork to back up your claim if you face an inspection.
- Do the books regularly. This will make it easier for you and means your records are likely to be more accurate. It’s well known that HMRC is more likely to believe contemporaneous records.
HM Revenue & Customs (HMRC) has launched two free guides to help small firms keep their tax records in order. Help with basic record keeping and information you need for your tax return is available to help you keep on top of your tax affairs.
Chartered Accountant Birmingham