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In my experience the standard of record keeping in small businesses has deteriorated over the years with many business owners trying to maintain their own records but with little success.

So what is good record keeping according to HMRC? They have been quoted as saying that "An accurate record of business money in and business money out in whatever form...will be all that is needed to fulfil the record keeping obligations that the law requires. Good record keeping is essentially about diligence, not technical ability."

I always tell clients that it does not matter where and how they record their business transactions as long as it is complete and accurate. Today it should be easier with the raft of computer programmes but the adage garbage in garbage out comes to mind.

So what is the problem? Last February HMRC announced a Business Records Check programme where they are to review the adequacy and accuracy of the records kept by 200,000 small and medium sized firms over the next four years.
HMRC estimate the yield from these checks to be an additional £600 million as a result of more accurate tax returns. Certainly it is easier to check records rather than carry out a full investigation making better use of their scarce resources. Cynically you wonder what these reviews at business premises will cover. What records will they review?

HMRC does have the power to impose a fine of up to £3,000 where they are of the opinion that there has been "serious record keeping failures"

In a consultation document last December HMRC stated that about 40% of the targeted sector keeps inadequate records. So far in the first half of this year 1,500 small firms have been visited.

I know that when I was a tax inspector the PAYE compliance officers were useful in looking at records other than the PAYE cards etc. and in particular the cash book. In small businesses the cash control is so important and in a cash business the highest risk area.

So far there has been little or no comment in the professional press but one article suggested that in one case the HMRC officer reviewed the mileage claims by the directors. They had in support of their claims kept fuel receipts and details of the journeys undertaken. That included the date and distance of each journey and the name of the client visited. They were told this was not enough. Remember there is nothing in the statute that states what diaries or records are required to be kept.

The officer's suggestion was that they should buy something from a local shop so the receipt would prove the destination. That is clearly over the top and I am sure the officer's conduct would not be appreciated by HMRC Head Office. Needless to say the claim which could have amounted to £50,000 was dropped.

In another case questions were asked about other sources of declared income which surely was wrong.

My suggestion, check with your accountant to find out what deficiencies there are with your records and how you should correct them before HMRC knocks on your door.

Peter Clare

The Poacher turned Gamekeeper

http://www.mrtax.co.uk

This information has been honesty written with a view to helping you: I am, like most people, not perfect and I apologise for any in corrections. I cannot be held responsible for any consequences of you using the information unless I have been made aware of the full facts of the matter and have expressed an opinion thereon.

By Peter Clare
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