The government’s drive to make businesses tidy up their tax and record-keeping is moving up a gear.
Having carried out a pilot scheme earlier in the year, HMRC is now beginning to contact the country’s SMEs to check that all tax related records from VAT to PAYE, NIC, corporation tax, expenses and any other taxes are “adequate and accurate”.
HM Revenue & Customs will begin by contacting businesses in London and Anglia. It will then move on to other parts of the country through the next few weeks.
Recently established businesses are among those most likely be approached.
“HMRC announced it was planning these checks some months ago, so there has been plenty of warning. But the taxman is now starting this project in earnest,” warns Tim Lyford, head of corporate tax at accountancy group Smith & Williamson.
He continues: “In practical terms, HMRC will expect to see that a business is keeping full and accurate records of its invoices, receipts, petty cash, general expenses and so on. It may ask to see diaries to correlate expenses, for example.”
This is the first time that the tax authorities will be looking at records for the current year. Until now, HMRC has only scrutinised a firm’s tax affairs if it thinks the business has filed an inaccurate return and is paying too little tax. Now it’s toughening up.
Earlier this year, HMRC estimated that two million SMEs keep inadequate tax records.
Lyford offers the following five tips:
- Retain records going back at least six years.
- What to keep: invoices, bank statements, paying in books, details of purchases, expense details and so on.
- Anyone who makes a claim for the use of assets which they use personally as well as for the business (a car being a typical example) must be scrupulous in allocating personal and business useage and have the necessary supporting paperwork to back up their claim.
- Keep on top of your expenses and record keeping. This will make it easier and more accurate. And HMRC is more likely to believe contemporaneous records.
- Avoid estimates. If you have to estimate an amount, make sure you can provide suitable evidence.