You may recall my blog post of 16 June in which I explained that HMRC had started checks on the books and records of SMEs.  At the time the checks were restricted to 8 geographic areas.

HMRC has now announced that the pilots found around 44 per cent of businesses visited had issues with their record-keeping, while around 12 per cent of those visited had seriously inadequate records.

As a consequence, HMRC will be now be extending its books and records checks across a number of key areas across the UK.  In order to achieve this, the number of full-time staff employed on the programme will rise from 30 to 120.  We don’t yet know where the key areas are located.

HMRC plans to complete up to 12,000 Business Records Checks by the end of the current financial year, with the new programme having started mid September 2011, and 20,000 checks provisionally planned for 2012/13. Final decisions will be taken on a national roll-out in the New Year.

HMRC have said that they will only levy a record-keeping penalty in the most extreme cases of poor record-keeping. However be warned because in the longer-term, they intend to issue penalties of up to £3,000 for serious inadequacies in record-keeping. We hope to see further guidance issued shortly on what is considered “adequate” record keeping as it does currently appear to be a grey area.  It is recognised that the requirements for very small business should not be as demanding as those for a larger SME.    We  understand that the new compliance team considers that retaining a set of purchase invoices without listing them is inadequate. We’re hoping for clarification on this soon.

You should make sure that you have accurate bookkeeping and that it is kept up to date in a format that is appropriate for your business.  If HMRC becomes aware of the absence of such records, they will look at the risk of under declared taxes and we understand that they are concentrating particularly on new start ups.   Of course by having complete records – and especially if you have regular management reports – you will have much better information at your disposal to take informed business decisions and to build a better business.

If you need any help with your record keeping please let us know.  We can help you introduce bookkeeping software that is very simple to use and which will make the maintenance of your books and records relatively straightforward.  Alternatively let us take the strain and we’ll look after it all for you.

Tony Reynolds is partner in charge of Cassons Business Support and Small Business teams. email tony.reynolds@cassons.co.uk

HM Revenue & Customs (HMRC) has struggled to issue the normal Self Assessment Statements of Account in time for the second 2010/11 Payment on Account, which is due on 31 July, and up to 500,000 taxpayers may still be waiting for their Statements.

HMRC normally issues around 2 million Statements, printing them off in batches over a period of several days, and sending them out so that they arrive a few weeks before the payment deadline of 31 July.

HMRC has said that they forecast how many Statements will be required based on previous years and make allowances for possible changes but apparently this year, the number of people requiring Statements is much higher than in 2010 and the increase is well above the margin provided for. HMRC appears quite literally to have run out of the special stationery required for the Statements, and taxpayers whose tax reference ends anywhere between “70” and “99” may still be waiting – with less than a week to go before the payment is due. HMRC forecasts that up to 500,000 taxpayers will be affected.

Whilst the law requires that payment be made by 31 July, HMRC has recognised that many taxpayers will rely on the Statement from HMRC to prompt them to make their payment, making use of the payslip that comes with the Statement. They have therefore made provisions in their systems so that where taxpayers receive their Statements late, then provided they pay the amount due within 30 days of receiving that late Statement, interest will not be charged. (Interest would otherwise normally be charged from 1 August).

We’ve already sent letters to our clients telling them how much tax will need to be paid by the end of the month. It is possible to pay without the payslip and we generally recommend following the guidance at http://www.hmrc.gov.uk/payinghmrc/selfassessment.htm for paying electronically. There are several payment options set out on HMRC’s website using this same link.

This problem has occurred once before, in January 2008. So, with potentially half a million people still waiting for their July Statements, it’s difficult to see how HMRC could have got this so badly wrong again. At least they’ve done the decent thing, they have put off charging interest, and they have said that they will learn a lesson from this. But it’s still likely to annoy a lot of taxpayers.

Do you keep adequate books and records for your business? In April HMRC announced the start of a pilot programme of Business Records Checks (BRCs) to review both the adequacy and accuracy of business records within the SME sector.  It is reported that from letters sent to SMEs from the Liverpool tax office none of the businesses checked were deemed to have adequate records and that these businesses have been advised that Inspectors "may visit you again in the next three months to check whether you have made improvements in the areas mentioned" – and this was just the pilot scheme!

The specific areas indicated for improvement were;

·          that sales invoices should be issued with consecutive numbers and

·         a cash book maintained.

·         a drawings record should always be kept,

·         a mileage log maintained and

·         business records written up at least weekly.

The emphasis of HMRC’s checks are on you maintaining up to date books and records as a basis of your final accounts and tax returns submitted to HMRC.  In the absence of such records, they are looking at the risk of under declared taxes and are concentrating particularly on new start ups.  It is important that your books and records are kept up to date regularly and in a form appropriate for your business affairs.

If you need any help with your record keeping please let us know.  We can help you introduce bookkeeping software that is simple and which will make the maintenance of your books and records relatively straightforward.  Alternatively let us take the strain and we’ll look after it all for you.

The benefits to you of us looking after the books and records, or of you using some simple accounting software are that you will have up to date management information on which you can base your management decisions and you will avoid problems arising from scrutiny by HMRC.

What do you think about this?  Perhaps you already keep up to date records?  Or perhaps you don’t see the point – or you’re simply too busy running your business?

HMRC has announced that it will be launching a campaign to target businesses that are trading above the VAT threshold but have not yet registered for VAT.  The crackdown is intended to take place later this summer but we suggest that businesses check their turnover levels sooner rather than later.

At present, the VAT threshold is £73,000 turnover on a rolling annual basis, meaning the last 12 months. It also applies if turnover is expected to exceed the threshold in the next 30 days.

We find that it is the “rolling basis” that can catch out businesses, especially when turnover is growing quickly.  Too often business people only review their 12 month results at the end of their financial year which could be too late as the VAT threshold could already have been exceeded.  We strongly recommend that any business people who see their turnover growing swiftly should consider registering for VAT before they reach the threshold so that they are not in contravention of the rules and so avoid being liable to penalties. Registering for VAT does mean recovery of VAT incurred on costs, so it is not all bad news.

We recommend that our clients start to use an accounting software product (such as Xero) for record keeping so that rolling 12 month turnover figures can be easily monitored to determine when they exceed the VAT registration threshold.

Have you been in the position of approaching the VAT threshold and perhaps exceeding it?  What was your experience?