Spot-check on business tax records ‘misguided’

The taxman’s proposal to spot-check the records of small companies before they submit relevant self-assessment returns has been condemned as “misguided.”

Although improving record-keeping among small firms is to be welcomed, the Chartered Institute of Taxation says such a goal will be missed if the spot-checks go ahead as planned.

“The purpose [of the initiative] seems to be more about raising money through penalties than about helping businesses improve their systems,” the CIOT said.

“HMRC are putting forward a blunt instrument designed to deliver punishment when what is needed is a collaborative process focused on providing education, guidance and support.”

The group, which counts more than 15,000 chartered tax experts among its members, said HMRC also needed to rethink before making the checks because it may face a legal battle.

“The legal basis for levying penalties as a result of such a check prior to submission of a return is questionable unless there is a failure to keep any records at all or there has been a failure to preserve them.

“A penalty should only be levied once it has been proved that the bookkeeping records have led to an incorrect return,” the institute said. “The penalty should be linked to the incorrect return.”

Anthony Thomas, spokesman for the CIOT, was also critical about the timetable for the now-closed consultation about the Business Records Checks Programme, due to be undertaken on 50,000 firms in the second half of this year. 

“[It] was poorly timed.” he said. “Many tax advisers involved with small businesses who would have liked to comment have been tied up with self-assessment returns and the need to start submitting returns in a new language, iXBRL, during the period.”

If the Revenue still wants to continue the checks, Mr Thomas said it should address the tax industry’s concerns and consider face-to-face workshops with advisers before its inspectors begin their rounds.

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