HMRC Record Checks – be prepared!

On 17th December 2010, HMRC announced their intention to roll out a programme of Business Record Checks in the second half of 2011.
As of today there have already been some recorded cases where HMRC have investigated business’ accounts and records.

HMRC intend to raise £150,000,000 annually from penalties brought about by these record checks. With a maximum initial penalty of £3000 this equates to 50,000 businesses being “caught” with sub-standard records and book-keeping.
This 50,000 figure is also the number of businesses that the HMRC will be targeting each year! This is worrying as it indicates they are planning on charging every business they inspect!

Currently HMRC are training a team of inspectors who will start targeting businesses to try and identify sub-standard or dodgy record and book keeping. Many accountants and other financial industry experts have cast doubt on the skill and knowledge level of these inspectors stating that only a fully qualified accountant can fully identify issues within a companies financial record keeping.

The double whammy here for small and medium businesses is that should the inspectors find anything suspicious then they can enforce a penalty onto the business AND there is the possibility of additional penalties through subsequent PAYE/NIC or VAT audit checks for instance.

The HMRC inspectors have the power to enter your premises. Note: “premises” are defined as “any part of premises that HMRC believe are used in connection with business”, meaning they can enter your home as well is deemed necessary. The can perform announced and unannounced visits and whilst you can refuse initial entry under the terms of the Human Rights Act to privacy they can then subsequently obtain the courts permission to enter.

What records should I be thinking about keeping an eye on?

• VAT account records
• Copy sales invoices (unless retail)
• Purchase invoices
• Import & Export documentation
• Details of all payments made to contractors and sub-contractors
• PAYE records – all records
• Records sufficient to show and explain the company’s transactions
• Records sufficient to disclose with reasonable accuracy the financial situation of the company
• Records sufficient to enable the directors to ensure that any accounts comply with the requirements of the Act
• A record of all the assets and liabilities of the company
• Records to establish the statement of stock at the financial year end

Areas to watch out for:

• Unexplained receipts and payments
• Missng invoices
• Estimates
• Cash differences
• Dividend documentation

What should you do?

The import point here is that if your records are up to scratch and you can deliver all

• Examine your business records
• Get an external accountant to review your records
• Invest in investigation fees protection

Additional information:

http://www.hmrc.gov.uk/ria/business-record-checks.pdf