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HMRC turns the heat up...make sure you don’t get burnt

In recent weeks, HM Revenue & Customs announced the latest measure in its fight against tax dodgers.

These include the launch of two new taskforces targeting scrap metal dealers and fast food outlets in Scotland. Taskforces are specialist teams that undertake intensive bursts of compliance activity in specific high risk trade sectors and locations across the UK. They were born out of the £900m programme to tackle tax evasion, avoidance and fraud, which aims to raise an additional £7 billion each year by 2014/15.

According to HMRC, more than two million small business owners could be keeping inadequate records, which has historically lead to an underassessment and payment of tax. Given the deteriorating fiscal landscape, it is not surprising that HMRC is ramping up its compliance activity on the SME sector. In fact, HMRC is planning 12 taskforces in this tax year, the first of which was launched in May, with more to follow in 2012/13.

The compliance programme began back in June when HMRC rolled out nationwide random visits to small business owners to conduct on the spot business record checks. The spot checks are expected to see some 50,000 small businesses visited and face the threat of fines of up to £3,000 on those whose records do not meet minimum standards.

If you haven’t been visited by the tax man yet, it is now more important than ever that you are proactive in getting your books in order and avoid incurring any penalty fines. It is also crucial, especially, in the current economic climate as poor record keeping is also one of the top five reasons why small businesses fail.

So what do you need to do to ready yourself for a potential spot check from the HMRC? In the words of HMRC “You must keep records of all your business transactions.” 

While sole traders and partnerships with a turnover of less than £15 million are no longer required to submit their accounts along with their tax return, as all the required information will be captured in the ‘Standard Accounts Information (SAI) part of the return, this is by no means a ‘get out’ clause. If HMRC have any queries with the tax return, they can ask to see all your associated records and documentation, including all issued and received invoices and receipts.

The types of records you need to keep will vary depending on the type of small business you are, for example if you have employees and also whether you are VAT registered.  It is worth noting that if HMRC find that you have not kept all the required records, or you have not been keeping records for long enough, you could find yourself facing a fine. 

Here is a quick check list of the specific types of records you should be keeping:

  • A cash book
  • A petty cash book
  • A sales and purchase ledger
  • A wages book
  • Invoices and receipts both issued and received
  • Electronic records of sales or till rolls
  • Details of items not rung through the till
  • Details of incidental or miscellaneous income - for example rent for accommodation owned by the business
  • Hire purchase and leasing details
  • An inventory of stock on hand at the end of the accounting year
  • Bank and building society statements, pass books, cheque stubs and paying-in slips which include details of business transactions
  • Details of any money taken out of the business personal use
  • Details of any private money brought into or taken from the business

Ultimately, getting into and maintaining good bookkeeping habits is crucial to both passing an HMRC spot check and running a successful business. As well as setting aside dedicated time each week to review and update your books, small business owners should make sure this time is spent in the most constructive way, for example by using financial management software to automate and streamline the process. This will not only ensure you are tracking your expenses in real-time and managing cash flow but should the tax man turn up the heat, help you to quickly and efficiently put out the flames by being accountable for your record keeping.


Diana Flier (pictured), senior compliance expert, Intuit UK

Intuit is an accounting software provider and has recently launched its new QuickBooks 2012 product suite.


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