When HMRC announced plans that they would be targeting 50,000 businesses per year over the next four years it was supposed to be the start of a consultation period to judge responses. However, it looks as though this consultation period finished as quickly as it started and HMRC have now announced that they will be starting to visit the first batch of businesses very soon – in fact, letters have already gone out.
It seems that location, location, location is everything on the first campaign, so if you live in Edinburgh, Irvine (?), Manchester, Liverpool, Stockport, Sunderland, Sheffield or Portsmouth then you could be one of the unlucky 1,200 to have already received a nice letter from HMRC.
So, you have received one of these letter’s, what should you do?
Well, HMRC inform us that in this initial period they will not enforce any penalties due to inadequate bookkeeping (really?!). Furthermore, there are no right or wrongs formats to complete the books onto. However, it’s more about whether the format is suitable for the size or nature of the business.
First, let’s assume you keep adequate records on some kind of accounting package and this is regularly kept up-to-date and is checked frequently by an accountant. On principle you have nothing to worry and HMRC should be satisfied that all procedures are in place to ensure bookkeeping is adequate. However, it would still be worth getting your accountant to give the records a “once over” to avoid any nasty surprises.
Next, let’s assume that you do keep some sort of bookkeeping system, albeit, this is hit and miss and you tend only update maybe once a year or when the VAT is due. You may or may not keep in regular contact with your accountant. Firstly, instead of panicking and rushing to update the books, get in touch with your accountant (or find one) and get them to brief you on what you should do. In most cases they may suggest continuing with the current method. However, it could be that this is a great opportunity to update the bookkeeping package and look at other alternatives such as, on line accountancy approach.
Finally, we’ll assume that your idea of bookkeeping is a plastic bag (or shoebox) approach and that your accountant changes every year when you suddenly remember in January that the accounts need to be done. Firstly, don’t panic too much if you receive a letter (don’t forget HMRC will not penalise you this time). However, you need to sort your bookkeeping out immediately. However, similar to the above scenario it would make sense to contact an accountant and ask for advice before rushing out to buy any old bookkeeping software.
Ultimately, it will be down to your budget on what you decide to do, as accountant’s will charge for any advice or work undertaken for you. HMRC are being bullish in their attitude that the direct cost of a visit will be £54. This simply will not be the case even if you fall within our first scenario. However, getting good advice on bookkeeping is essential and an accountant is usually in the best position to provide this.
Don’t forget, bookkeeping is not just about compliance. Bookkeeping is about being financially aware of your business, it’s cash flows, trends or how profitable it is. Many businesses fail due to poor financial management caused by lack of knowledge. Taking an interest in bookkeeping means you will be less likely to fail due to bad planning.