Record checks cost 'will be ten times higher'

HMRC’s plans for checks of medium-sized enterprises’ (SMEs) record-keeping will cost firms more than ten times the official estimate, according to the Institute of Chartered Accountants of Scotland (ICAS).

The taxman intends to visit 50,000 SMEs every year for four years, to confirm the adequacy and accuracy of their paperwork. The department has suggested that each visit, averaging half a day, will cost a business £54 – but the ICAS has calculated the price at over £560, saying assumptions about the incidence of inadequate records are unsubstantiated and the costs of the scheme have been massively understated.

The Revenue’s initiative will be implemented in the second half of 2011, with the threat of penalties up to £3,000 for ‘significant’ failures in admin. The department expects to raise around £600 million in the first four-year period.

In its response to the consultation on the matter, the ICAS highlighted what it perceives as flaws to the proposals, and insisted tax authorities allow the first records check of a business to incur no penalties but only practical advice, or a warning if appropriate.

‘HMRC’s basic assumption seems to be that SMEs with poor records have chosen to have poor records. This is a misconception,’ remarked the organisation’s Ian Dewar.

‘Those with the courage and tenacity to embark on new business ventures are forced to battle from the outset against a mass of government regulation and red tape. Typically they don’t go into business because of their record-keeping skills.

‘HMRC should be looking for positive ways of encouraging taxpayers to maintain adequate records, rather than adopting a big-stick approach that we believe will cost owner managers a lot of resource that could have been better directed towards growing their businesses.’

Issue: 4294 / Categories: News , BRCs