Business Record Checks

Emmamumof2

Just been reading about this new initiative which has started this week with 1000 letters going out. Is this as a result of risk assessment? What is the general view of who they will concentrate their efforts on! Given there are 4.8 million SME's in the UK 50,000 check a year is only just over 1% so I guess they must be honing in on certain businesses.....will they concentrate on those with more complicated affairs such as PAYE/VAT/Corporation Tax?

Nosht

To encourage the others.
I don't think that they have the staff necessary to carry out as many enquiries as they say they will; it is just a frightener.

N.

Emmamumof2

It says its costing them 10.2 million ! Just interested in how they going to pick the majority of the cases - I know some will be random but Im guessing not many!

Pennywise

No one knows how they'll select these new business compliance inspections as they are a new concept in that they're going to include checking all the various different business taxes.

Prior to the mergers etc., you'd have lots of VAT and PAYE inspectors doing pretty much a rotation to visit virtually all registered businesses over a several year period - some would be marked for more frequent visits, others would be left along for another 10 years or so, but, over a period of say 3-7 years, virtually every registered business would probably have got a visit, typically lasting only half a day or so and maybe just a questionnaire or phone call for the smallest of businesses. This acted as a major deterrent for those people who were basically honest to keep it that way! At the other end of the scale, for income tax and corporation tax, you'd probably never get an investigation unless your accounts/return showed something strange that the inspector wanted to check and these inspectors couldn't do "visits" - they had to open a formal enquiry, which tended to be more in depth and could last a long time.

After the mergers, they moved onto more "risk assessed" visits and enquiries for all business taxes. They stopped doing routine VAT and PAYE visits, and put their efforts into more "high risk" traders, such as cash traders, shops, fast food, etc for small scale businesses, but really went to town on the big fraud, so they basically left alone "average" businesses that didn't get flagged up with their risk assessment profiles etc. Trouble is, people talk, especially with the internet forums etc., so it's now widespread knowledge how to "keep under the radar" to avoid HMRC scrutiny which is a gift to the !!!!less and criminal.

I think they've now changed direction again and realised they've ignored "average" businesses for too long, and that "non compliance" from "average" businesses has been on the increase, either innocently or deliberate, so they're bringing back the routine compliance visits like the old fashioned VAT and PAYE inspections, but under the merger, the can now look into income tax, corporation tax, etc at the same time. They've "cross trained" the inspectors so that they no longer just concentrate on one type of tax, and now can look at everything in one go.

This is going to change the face of tax enquiries/inspections, especially re income and corporation tax where previously the inspectors had to open a formal enquiry to get any detailed information or sight of the company records. Now they can just walk in and pore over the paperwork.

As we see regularly on these and other fora, there does seem to be an increasing number of people who, eg, do their own accounts and tax returns, and make fundamental errors, such as not adjusting for stock, or submitting on "cash" basis instead of "accruals" basis, or simply "forget" to declare property sales or income, etc. It's the lack of investigations and compliance visits that has allowed this to happen, and HMRC know that, hence the need for them to get out and start checking things again - more of a deterrent than actually finding underpaid tax.

My personal opinion is that we really will see a lot more HMRC activity to check for compliance, and anecdotal evidence suggests that they are indeed actually "doing" it rather than threating it. I've already heard of a few compliance visits. Eg., I have a small client base (under 100 clients) and can't actually remember more than 1 compliance visit to any client in the past five years, but we've had 3 this year already. I've also had several phone calls from potential clients asking for me to take them on as a client to represent them following an HMRC inspection where "errors" were found, which is again very unusual as I only usually get say 1 or 2 a year. Other accountants I've talked to have said the same thing, and I've noticed a few people (more than usual) on internet fora saying they've either had visits or are subject to a formal enquiry. This time, I don't think they're bluffing.

50,000 businesses is only 1,000 per week, or 200 per day which spread across a few thousand HMRC staff is easily achievable. Just a matter of getting them out of their chairs for a couple of mornings per week. Even with redundancies, the HMRC workload has fallen rapidly over recent years because of the online filing of returns which has meant a massive reduction in time spent "manually keying" information into their systems from paper returns. They're now also over the pain of the mergers and finally have some systems that work rather than lots of different systems not talking to eachother that required a lot of manual input to make work.

I really do think that more "random" inspections will be made, i.e. not based solely on what the computerised risk assessment flags up, but also randomly visiting businesses for a short visit just for a quick check that things look OK.

Emmamumof2

Thanks Pennywise thats informative. I didn't think 50,000 per year sounded a lot being only 1% of their target of SME's but I guess on top of the quoted formal investigations of 3% per year HMRC is increasing its compliance activity is the general gist! I have a spreadsheet surmising invoices out and a wallet with invoices printed out for each month (there are probably only 9 a month regular clients) and a spreadsheet surmising the expenses with a wallet for receipts from each month (of which there are probably 4 or 5 a month) so it wouldn't take them half a day to look at my records LOL! Is that what they will be after? Also, I note these are "in-year" checks - does this mean they wont want to examine previous years records? Just wondering what would need to be presented in the event I was chosen. Given that I only provide admin support to clients its not complicated - no cash sales/no till rolls/no stock etc and I use a qualified Accountant.
I found this quote in the consultation document from HMRC that is interesting:

"Whilst there will be up to 50,000 BRC’s annually, the focus will be on those businesses which ‘risk assessment’ suggests are likely to have inadequate business records so that the impact on compliant businesses will be minimised. "