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HMRC reviews Business Record Check plans
4th Jan 2012
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HMRC is to review its Business Record Checks (BRC) scheme in response to concerns raised by the tax profession.
The Revenue piloted the first phase of the scheme between April and July 2011, examining companies’ proof of expenses and income dating back years. In 2012, HMRC plans to spot check the paperwork of 20,000 companies - not 50,000 as published in the original consultation - and potentially fine those with sub-standard records up to £3,000.
However, the department announced just before Christmas it will review the scheme with representative bodies to address their complaints about inadequate consultation. But HMRC will press ahead with a limited number of BRC pilots in the meantime.
The Revenue said: “HMRC recognise that the launch of the BRC pilots has caused considerable concern to the tax profession and that the project would have benefited from more detailed consultation with tax professionals at an earlier stage. In the light of these concerns, HMRC will undertake a strategic review of the project in consultation with the professional and representative bodies.
“The purpose of the review is to consider the overall aims of BRCs, examine whether the current approach is the best way of achieving the policy objectives and identify what changes are needed to ensure that the objectives are achieved.”
AccountingWEB contributor Simon Sweetman said of the lack of consultation: “This has been a consistent problem – HMRC has often consulted well up to the point at which it actually sends people out and then going rather off the rails because, I think, of a reluctance to let anyone ‘interfere’ with operational matters.”
The ICAEW welcomed the review: “The Tax Faculty and other tax representative bodies have been concerned about BRCs from the beginning. While we support initiatives to help businesses keep good records, we are not convinced that the BRC approach is the best way to achieve this. We are concerned that HMRC may set unrealistic criteria for small business records and that BRCs will place a considerable compliance burden on SMEs and their advisers.”
HMRC has come under fire from business groups, who argue that the checks could drive many struggling companies to insolvency. John Walker, national chairman of the Federation of Small Businesses said: “Despite the worsening economy, HMRC is launching this scheme regardless of the consequences.”
He added: “We have spoken to HMRC and expressed our concerns about this a number of times. But as far as they and ministers are concerned it is a policy aim to make this happen. There is a huge difference between the rhetoric of the government about helping small businesses and what it is doing in reality.”
Conservative backbenchers also slammed the scheme for its focus on small firms in light of the department's recent controversial “sweetheart deals” with Vodafone and Goldman Sachs, as revealed in the recent House of Common's Public Accounts Committee report. The report found HMRC gave “preferential treatment” to big firms and allowed Vodafone to settle a long-running dispute by paying £1.25bn when the tax bill should have been £6bn or more.
Priti Patel, the Conservative MP for Witham, said: “This is the persecution of small businesses at a time when they are already facing a very, very hard time.
“The attitude of HMRC to small businesses is frankly disgraceful when they are blatantly doing deals with large firms which have allowed them to escape millions of pounds in tax liabilities. It seems as though HMRC sees small businesses as low-lying fruit to meet their targets. That kind of persecution is outrageous,” she added.
The Revenue said that during its pilot scheme around 44% of businesses visited had issues with their record-keeping, with around 12% of the total having serious inadequacies. “It is not the purpose of BRC to find additional tax during the visit,” said HMRC, but to “improve record-keeping among SME customers” and help small business owners complete more accurate tax returns at year-end.
The department is expected to unveil the findings of the review later this month and final decisions regarding the scheme will be made before the end of the current financial year.