Business owners in the South are being urged by a tax expert to ensure they maintain exemplary records as HM Revenue & Customs prepares to hone in on small-to-medium-sized enterprises.
In a record-checking programme, HMRC is to visit 80,000 SMEs, which typically employ between one to 249 people and form the vast majority of businesses in Britain, over the next four years.
Having carried out a pilot scheme earlier in the year, it is now beginning to contact firms to check that all tax-related records, from VAT to PAYE, NIC, corporation tax, expenses and any other taxes, are “adequate and accurate”.
“Local business owners should take these warnings seriously,” said Trevor Hayman, an associate director of tax at the South Coast office of accountancy and investment management group Smith & Williamson in Southampton.
“If they don’t keep good records, they may be unable to substantiate tax returns and so would have difficulty in proving their figures are correct, should HMRC take issue with them. Failure to comply will lead to fines and closer inspections.”
HMRC announced that they were planning these checks some months ago, so there has been plenty of warning, but the taxman is now starting this project in earnest.
Trevor added: “In practical terms, 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. They may ask to see diaries to correlate expenses, for example.
“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 business record-keeping by HMRC.
“The programme will apply to both new and established businesses and so it will be of concern to millions of businesses up and down the country, including ones in Hampshire and Dorset.”
Earlier this year, HMRC estimated that some two million SMEs keep inadequate tax records.
To encourage people to get their records in order, HMRC issued a range of advisory information which is available at www.hmrc.gov.uk and it will be looking to see that firms have applied this advice.
As a basic minimum, business people need to be organised and methodical in their record keeping.
Trevor’s top five tips include:
Keep safely: retain records going back at least six years.
What to keep: invoices, bank statements, paying in books, details of purchases, expense details and so on.
Personal vs. business: anyone who makes a claim for the use of assets which they use personally as well as for the business – a car being a typical example – must be scrupulous in allocating personal and business usage and have the necessary supporting paperwork to back up their claim.
Be regular: keep on top of your expenses and record keeping. This will make it easier and more accurate. Also, HMRC is more likely to believe contemporaneous records.
Avoid estimates: if you have to estimate an amount, make sure you can provide suitable evidence.