Good business records are for life – not just for Christmas!

Since the introduction of self assessment over 15 years ago, the emphasis has always been on the taxpayer’s honesty and willingness to get the numbers right on their tax returns.

Those who work with an accountant are usually happy in the knowledge that the numbers have been checked.

HMRC introduced a programme of Business Records Check (BRC) in an attempt to check that records of businesses are adequate enough to ensure they can complete their tax returns accurately and in April 2011, HMRC piloted the first phase.

The BRC process was clearly aimed at SMEs and you may remember the headline that they were targeting 50,000 businesses.  Needless to say, it met with much criticism and in reality they only managed to carry out around 3,500 checks before they halted the process in early 2012 to carry out a review of the scheme.

When they relaunched the scheme later in 2012 it was on a much more ‘softly, softly’ basis, with the initial contact by letter suggesting a time and day to hold a telephone interview.  During the interview, a number of questions are asked to try to determine whether the taxpayer has been maintaining adequate books and records and also whether they had an authorised agent (read accountant’) in place. Depending on the outcome of the questionnaire, taxpayers were either advised that no further action was required, offered some additional ‘educational’ help or referred for a face-to-face appointment if assessed as being at risk of keeping inadequate records.

We’ve helped a handful of clients who’ve received BRC letters, and once we briefed them on what to expect, they answered the simple questions fairly confidently and, happily, advised that there would be no further action. These clients were all using spreadsheet based records, but most importantly, they were identifying bank from cash payments and maintaining separate business bank accounts.  It is common for small business to keep this type of records, but it demonstrates that you don’t have to maintain complicated accounting systems to be meeting the criteria.

Fortunately, after the latest round of Business Records Checks, HMRC have found that many of the customers contacted have in fact been keeping records correctly and that many tax agents already do much to improve their clients’ record-keeping!

Where does all this leave micro and small businesses?

The key lesson to take away from this whole process is that regardless of whether you receive a Business Record Check call, good record keeping is something to be done all year round so you are ready for any request.

Here at WBS Accountants we believe that all businesses should be keeping close control of their business finances but they should be relevant to you and your business, which may mean spreadsheets, desktop software or cloud accounting solutions such as Xero.

Remember that your systems may need to change to reflect your business’s stage of development.

If you receive any contact from HMRC regarding Business Records Checks, please contact us and we’ll go through what you can expect and make sure that your business record keeping satisfies their criteria AND your business needs.

If anything you have read here has raised more questions, please feel free to contact us to see how we can help.

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