Check, what will that comprise, what are his rights, can he refuse to comply and what would be the consequences. Is this simply a ‘back door enquiry’?
HMRC have powers to inspect business records to ensure that they are being maintained correctly. A new procedure began in November 2012 and a significant number of traders are now receiving these letters. The check is considered by HMRC to be a compliance approach to ensure that individuals are aware of their obligations and are maintaining sufficient records to prepare accounts and quantify their income for tax purposes.
In the first instance the check is conducted via a telephone conversation between the trader and a Revenue officer. From our numerous conversations with accountants and advisors nationwide, the questions are general in type and nature and address primarily the traders understanding of what is required to be maintained, rather than the quantum of the figures. The queries also look at the number of clients and invoices and the differential between cash and cheques.
Most of the calls last between 8 and 13 minutes, some conclude with a statement that no further check is required, others end with a request for an actual check and thus a visit by the Revenue officer is arranged.
Unless the accountant is solely responsible for maintaining the prime business records then HMRC will only conduct the telephone check with the trader, this may be done while the accountant is present or at their offices. If the trader does not comply with the request for a telephone check then HMRC move to the next stage and make a visit. Again this can be at the trader’s premises or the accountant’s offices.
If the trader refuses to co-operate with a Business Records Check and offers no good reason then HMRC can take the matter further to gain access.
If the records are ultimately found to be incorrect or inadequate then advice is offered by HMRC to improve them and failure to comply with the advice can result in a penalty. Deliberate destruction or manipulation of the records will also result in a penalty and is likely to also result in a full enquiry.
HMRC have stated that the purpose of a business records check is for compliance purposes currently and in the future, and not as a separate way of identifying defaulters, although in practice some may be uncovered. Experience shows that largely that is what is happening, if the records are adequate and the trader understands his responsibilities then there is nothing to fear. Denial of access will simply raise suspicions and have consequences in terms of enquiries and penalties. It is wise to comply as quickly as practicable.