Blog

Business Records Checks & How to Keep Good Business Records

Business Records Check

After a short pause for consultation, HMRC resumed its Business Records Checks programme in late October, 2012. The tax authorities are concerned that many small and medium sized businesses are failing to keep proper business records. Ultimately, the scheme is designed to ensure businesses keep records that allow them to accurately complete their tax returns.

How do the Checks Work?

HMRC targets businesses it suspects of being at risk of keeping inadequate records.

The business is contacted by letter to arrange a telephone interview / questionnaire.  No further action will be taken if HMRC is satisfied with the outcome of the telephone interview. If it deems that there are minor issues with the business’s record keeping, then they will offer ‘self-help’ education options. But if HMRC decides that major problems need to be addressed, then they will arrange for a full, in-person Business Record Check.

Take note that if HMRC is unable to speak to a business over the phone for whatever reason, it will automatically arrange for one of its officers to conduct a full record check.

Penalties

Even if a business has nothing to hide, having a Business Record Check can be costly, annoying, and worrying. The HMRC has the power to fine businesses outright for keeping bad records, and it is likely that bad record keeping will lead to penalties for inaccurate tax returns. It is not uncommon for business record checks to lead to full-blown tax investigations.

It is vital, therefore, that you keep your records in order.

HMRC will be required to provide seven days’ notice, either verbally or in writing, while obstructing visits may incur penalties of £300, with additional penalties of £60 per day until the obstruction has been removed and the documents made available.

Some general rules to keep by

The law does not specify exactly how you must keep your records. And precisely what needs to be recorded depends on the size, complexity and nature of the business in question.

Here’s a useful web page which may help.

It is advisable to keep all of the original documents which you receive.

As a general rule you should keep your records for a minimum of 6 years. But there are some exceptions:

  • Employers should keep PAYE records for 3 years (in addition to the current year)
  • Contractors in the CIS need to keep the CIS records for 3 years (in addition to the current year)
  • For a personal (non-business) tax return, you should keep records for 22 months from the end of the tax year to which they relate

Self-Employed:

You should record all sales and takings, including cash receipts. For example:

  • Till rolls
  • Sales invoices
  • Bank statements
  • Paying-in slips
  • Accounting records

And you should also record of all purchases and expenses, including cash purchases.

  • Receipts
  • Purchase invoices
  • Card statements
  • Cheque book stubs
  • Motoring expenses and mileage
  • Accounting records

Limited Companies:

You should keep accounting records (details of assets, liabilities, income & expenditure), and business records (bank statements and paying-in slips, accounts books, purchases and sales information).

If your business is VAT registered ALL of these are required by law:

  • VAT account
  • VAT sales and purchase invoices
  • Import and export documentation, for example, delivery notes.

Employer:

All PAYE records are required by law. For example:

  • Payments made to employees
  • Deductions from your employee wages of Income Tax, National Insurance contributions, and Student Loan payments.
  • Details of employee benefits and expenses
  • All records of statutory payments (including sick pay and maternity pay).

We strongly recommend cloud-based accounting systems – an excellent way of automatically staying on top of your business records.

Please do not hesitate to get in contact with us for more advice on Business Records Checks, and how to keep good business records.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.

 

 

1 Response

  1. TaxAgility

    The aim of the check is to ensure sufficient records are kept so that all income is disclosed in your tax returns and so that then the correct tax is paid at the right time. This is especially important for you operating a cash business. You should ideally keep the records of what is sold and how much the item was sold for, in writing, at the time of sale. And then link the monthly takings to how much you banked in the month and how much you used

Leave a Reply