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Is the Revenue taking the mickey

Is the Revenue taking the mickey

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My client has been in business for many years and tax returns are filed in good time. He has not been investigated nor has he had an enquiry. His records keeping on spreadsheets supported by invoices, etc are really good. He has just received a letter from the Revenue headed BUSINESS RECORDS CHECK. It states, every year we carry out a number of Business Records Checks to make sure that businesses are keeping adquate records. And "ta dah" you been selected. It went on to say  having a good record-keeping system helps a business to fill in its tax returns. So the aim of this Business Records Check is to establish wether your business is keeping statutory records that are adequate for the purpose of completing its tax returns.  It went on to explain  that statutory records are the records that tax laws say a business must keep. They are the records needed to enable complete and accurate returns to be made. The type of records need will vary from business to business.

The letter also stated that the Revenue would like to ask some questions in a phone call that should last about 15 minutes or the client can ring the Revenue. It further sates that at the end of the phone call the Revenue will have enough information to enable them to decide whether they need to visit the client to check that the statutory records are adequate. However, if they dont need to visit, they may instead ask their Business Education Support Team to contact the client to offer help so that the client can improve their record-keeping if necessary.

This is the first time I have seen such a letter from the Revenue which my client received direct from HMRC. Has any other accountants out there seen one of these. My question is, is this one of those imfamous Revenue fishing trip and how would an accountant respond to HMRC

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Euan's picture
By Euan MacLennan
25th Sep 2013 13:41

We have had a few

If the client's records are good, advise him to call HMRC when it is convenient to him - don't leave it to HMRC to call the client.  If he answers the questions confidently, it will all go away.

Don't get involved yourself - HMRC might think there is something to hide!

 

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By jivebunny
25th Sep 2013 14:01

Business Records Check

I've just received one of these letters today. This is the third so far. The first two were for self employed hairdressers. After the clients spoke to the office in Bootle which issued these letters one client had to come to my office when the local tax officer from Edinburgh came to inspect the records. After 20 minutes he agreed that the records were A1 and that his visit had been a total waste of time. The second client's telephone responses eliminated the need for an actual physical inspection.

Hopefully this third client will be able to convince HMRC that a visit would be a waste of time.

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By Steve Holloway
25th Sep 2013 14:08

Where have you been?

These first started in April 2011 before being relaunched at the back end of last year!

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By MJ Green Accountancy
25th Sep 2013 14:08

These are fairly common and it seems they target specific types of business in batches. From my experience, these checks are nothing to worry about. See the thread below for more comprehensive comments:

 

https://www.accountingweb.co.uk/anyanswers/question/business-records-check-letter 

 

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By Wanderer
25th Sep 2013 14:30

If you want to advise your client ....

Make sure the client rings them, not the accountant. Questions asked will be:-

 

Scale of 1-9 How would you rate your knowledge of your obligations to HMRC regarding record keeping?  

Scale of 1-9 How often do you require help for completing official forms (1 - no help, 9 - often need help)

Do you have an accountant?

How long in business?

How many income transactions per month? - 1-10, 11-20 etc.

How many of these are in cash?

How frequently are income transactions written up?

How many expense transactions per month? - 1-10, 11-100 etc.

How many of those are in cash?

How frequently are expense transactions written up?

Can you discern personal transactions from business transactions in any records?

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By MJ Green Accountancy
25th Sep 2013 23:22

I don't think the accountant ringing on behalf of the client is a problem personally. I have made the phone call on behalf of a few clients, all with HMRC saying that no further action is necessary. Furthermore I have been able to make a small claim on my fee protection insurance for doing so.

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By MarionMorrison
26th Sep 2013 07:33

Statistically

The entire exercise is a point-scoring thing.  If the answers clock up to a certain number then it triggers a more inquisitive approach to the bookkeeping.  Having the accountants rather than the punter talk to them gives a higher point score and that increases the likelihood of an 'education visit'.  We've just had one where someone's self employment amounted to about 10 transactions a year.  The fact that he didn't update his books more frequently than monthly has led to him being slated for a visit.  It isn't a system designed for the real world.

The actual visits themselves are predominantly friendly.  No damned use, but friendly although I do hear stories of ones which were less than friendly and the claimability of expenses being challenged by visitors when this is not an issue of bookkeeping.

 

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By Kingswear Court
26th Sep 2013 10:13

Nonsense

Just because this is the first time you have seen something, doesn't mean you have uncovered something new! This is standard practice and was used over twenty years ago in VAT. It allows an informed decision for further action and it won't matter whether an accountant does it or the trader. So long as the questions are answered fully by the accountant, otherwise the trader will still have to face the questions. Both may face the same questions and discrepancies sought!

Truth is, nobody knows why this particular visit has been triggered though as an ex-Inspector, I can tell you the reasons are many and legitimate.

The 'points' will indicate (along with other background information) what happens next.

An 'education' visit is a two-way affair, helping the trader avoid problems, pitfalls and penalties, whilst the inspector can get an idea of the person, premises and trading. They will return to the office and note what advice was given so if ignored, the evidence can be used in proceedings for failure to follow a directive - it's not rocket science.

BTW - there is not such thing as a "wasted visit" from HMRC. They were trying to be polite, empathic or maybe they were poor inspectors. Each time the premises are visited, a picture is penned of the business and any changes or potential tax 'problems' noted against that trader. Just one way that fraud is detected. What a shame everyone is not honest.

I could comment on the lack of respect, poor grammar and poor approach to the original question. As a business person, I would not employ you as your attitude alone is enough to raise increased interest from HMRC and potentially, your clients. You may like to think about this more, before making 'grand statements' in future.

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By MarionMorrison
26th Sep 2013 11:25

@Kingswear Court

I'm sorry but you don't seem to be speaking from knowledge of the BRC system, how it is choosing the 'targets' and how it is implemented in its telephone call systems or visits.  Apologies if in fact you have been involved with the current wave of BRC checks and have a different experience to ours 

It has nothing to do with the older systems for semi-inspections for VAT purposes.  It is not based on an informed knowledge of clients' accounting methods but on a box-ticking system. Someone who keeps their books monthly is suspect, someone who keeps their books weekly is not irrespective of the volume of transactions.  Those people making phone-calls have little or no knowledge of bookkeeping systems, tax, or accounts preparation.  They are call-centre operatives working with a script with no deviations.  If an answer doesn't fit their boxes it throws them into confusion.

The selection process is an industry-based one and is aimed at establishing those professions that are likely to be poor bookkeepers on average.  So they targeted say, musicians in London, window-cleaners in South Yorkshire, hairdressers in Wiltshire, etc on a random-sampling basis so as to compile statistics.  That's why we have had 50-75 BRCs that we've been involved with.

Of the three actual visits we know, deriving from the BRC process, it is entirely a one-way street with prescriptive solutions showing little understanding of the taxpayer and their business.  Not unpleasant, just the BRC guy saying the taxpayer should do X, being told that this isn't practical or sensible and just moving on.  All that's left in our trio is the feeling that this was an attempt to give increased opportunity for future Revenue enquiries.  

As agents we're supposed to be on the side of the punters, not facilitating additional work for the clients or us.  Nor should we be handing the Revenue additional tyre levers to work with.  I'm all for helping the Revenue and retaining amicable relationships with them but I won't be helpful with time-consuming and harmful stupidity.

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By MargaretThornton7
27th Sep 2013 13:26

I had a client who got one of the first letters and a call from HMRC. As backgroud she earns £500K+ in a big corporate job and the "self employment" was an occasonal bit of consultancy which in that tax year amounted to one £10,000 sales invoice (probably a days work!) and 3 travel receipts. HMRC marked her records down as "poor needing education"  following the conversation probably because:

1.  she said only wrote them up annually
2. She said she had no real accounting systems
 

Its a total waste of time and effort - she would have liked to bill HMRC for her time. Why did they pick her? No idea unless consultants in Berkshire seems a good category!

 

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Replying to Gone Sailing:
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By Paul Soper
27th Sep 2013 17:31

Box ticking

Your client MargaretThornton7 was trying to be too clever I suspect, the answer to write them up is each and every time one is issued (OK that might be annually but there is no need for HMRC to be aware of this) - you don't need an accounting system to pass the checks - satisfy them that all tranbsactions are by cheque or bank transfer and such expenses as may be claimed are all documented by cheque or credit card and the lack of a formal accounting system will not prevent you passing with flying colours. It is not what accounting system you may use, single, double or even triple entry but whether you keep records that enable you to determine and return your income.  You should have primed the client first before they contact HMRC - and yes they should contact them and not wait for a call. Why did they pick her? - consultants in Berkshire is probably as good a reason as any...

The danger is that as she has been marked as 'poor needing education' her card has now been marked and she could discover that this is not the last of a series of visits.

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By spidersong
27th Sep 2013 14:34

BTW there is such thing as a wasted visit...

as ex-HMRC myself, I've done several.

Businesses with a £50K turnover last visited with no problems 18 months previously, no variance in submission patterns and no changes of personnel or other details, but selected for a visit anyway. If you only ever had quality visits that contributed to overall compliance within the system then congratulations you've been very lucky. Either that or you were only there when visit selection was done locally and local knowledge could be bought into play.

I can't tell you the numer of visits I got to do to farmers whose major risk factor was they had moderate turnover, little input tax recovery but also very little output tax declared, apparently if you live in a major metropolitan area and select visits it's consistently surprising that farmers major outputs are zero rated food!

I suppose at a level of extreme pedantry you could argue that no visit is ever wasted, but that argument's on a par with the one that says a policeman who stops a youth littering whilst ignoring a mugging or shooting just down the street hasn't wasted his time, true he's upheld the law as is required, but it's a question of priorities.

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By Laurence52
27th Sep 2013 15:06

A recent experience

A few weeks ago I received a copy of the standard HMRC letter sent to one of my clients.His wife keeps the records which are well kept. The client puts up fences on agricultural land and similar work. All work is invoiced and is mainly received in cheque. Virtually all business payments are on debit or credit card or cheque. I've known the client for several years.

I rang his wife to talk to her about the letter to put her mind at rest. As he is out working during HMRC working hours it made more sense for them to ring HMRC rather than wait for the call. I did suggest that they make sure that the records were up to date when they rang as I knew that would be a plus point.

 

Because my client is 100% illiterate he would need his wife to deal with the HMRC questions so I suggested that he rang HMRC, explained this, and then the wife deal with them.

 

As this was the first time one of my clients had received this letter I thought I would check with HMRC that this was OK. I rang them, they did initially ask if I was going to deal with their queries but I said that my client would ring them. Obviously HMRC would accept talking with the client's wife (I knew perfectly well that they would).

But it gave me an excuse to mention in passing that the wife in the past had worked for a firm of accountants preparing accounts for small businesses .

Needless to say I eventually got a letter from HMRC saying that the business records check had been satisfactorily completed.

 

 

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By giannina
27th Sep 2013 15:15

Business Record Checks

We ran a very interesting article on business record checks in the last edition of our ICPA magazine "Accounting Practice" written for us by Ben Chaplin of Taxwise. It covered in some detail the whole process and procedures that are undertaken and answered many of the issues raised by both the original post and the respondents.

The article is available from our ICPA App which can be downloaded free whether you are on Itunes or Android.

Tony Margaritelli - Chair ICPA

 

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By KateR
27th Sep 2013 16:39

Business Record Checks

A few of my clients have had these, seem to have been geographic rather than ' industry' based. I dealt with one on behalf of a client who is deaf, it was straight forward box ticking. If a bit of common sense is applied when answering then no further action is likely.

Client who did get record check visit had it for a completely different reason and 'passed' with no adverse comments.

 

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By tiercel55
27th Sep 2013 17:16

Business records check

What only one letter - I have received 16 - all for taxi drivers and I am a sole trader

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