New HMRC records checks are flawed

Let’s face it.  A small business simply doesn’t have bookkeeping at the top of their priorities.  In this financial climate, making a decent enough living is a hard enough in any business.  HMRC just doesn’t realise this – or if they do then it’s a below the belt hit to businesses at a time when they are most fragile.

HMRC seems to be tightening the net with SME’s, whether it’s the proposed “informal” check of the business records consultation or clamping down on tax receipts if an investigation is underway.

HMRC’s current consultation’s aim is to visit 50,000 SME’s per year for 4 years to clamp down on (in their words) poor record keeping.  Using a big stick approach they can “impose penalties for significant record keeping failures” which will help improve bookkeeping and reduce tax losses to the Exchequer.

However, HMRC seems to be missing the point entirely – the assumption is that businesses with poor bookkeeping procedures choose to have poor records.  In my opinion this is far wide of the mark.  A skilled owner will set up business for a number of reason’s – their interest or skill in bookkeeping will simply not be one of them.

Now, like  most accountants, I am completely aware that some businesses consider bookkeeping part and parcel of running a business – others, less so.  However, instead of this “shock and awe” tactic that seems to be present within HMRC nowadays wouldn’t a better approach be to engage with accountancy firms to help provide their goal?

To keep a business on the straight and narrow is, in theory, an accountants responsibility.  It just doesn’t stand up in these modern times for an accountant to pipe up and request premium rate fees for such basic essential compliance work.  If an accountant is giving good service, advising on such “trivial” matters should be straight forward.

HMRC need’s to reconsider the consequences of these proposals.  It’s stated that any such visit by HMRC would cost the business £54.  However, clearly no other costs have been taken into account such as accountancy fees, for example.  The Institute of Chartered Accountants (ICAS) subsequently provided their own calculation of the same visit.  Taking into account expected accountancy fees the actual cost could be in the region of £560 per visit.

It’s about time HMRC started positive consultation with SME’s and accountants, encouraging taxpayers to maintain good paperwork rather than their current stance will ultimately cost tax payers more money.

Posted by Chris Mollan