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Government proposals to ensure the adequacy and accuracy of records kept by small and medium-sized enterprises (SMEs) have been condemned by the Chartered Institute of Taxation (CIOT) as a ‘blunt instrument’.
The professional body said the plan for HMRC to make large-scale checks of business records before tax returns are submitted is misguided and will not achieve its objective.
The Revenue intends to use powers granted to the department by Finance Act 2008 to scrutinise the paperwork of up to 50,000 SMEs annually, beginning in the second half of 2011, and to impose penalties of up to £3,000 for substandard record-keeping.
The main purpose of the checks – which are expected to raise around £600 million in the first four years – is ‘more about raising money through penalties than about helping businesses improve their systems’, claimed CIOT deputy president Anthony Thomas.
‘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.’
Mr Thomas went on to question the legitimacy of the proposed scheme, saying, ‘The legal basis for levying penalties as a result of 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 penalty should be linked to the incorrect return,’ added the CIOT deputy president.
His remarks came as the institute submitted its official response to the Government plans outlined in the consultation document, Business Records Checks, which Mr Thomas said was poorly timed.
‘Many tax advisers involved with small businesses [as clients]… have been tied up with self assessment returns and the need to start submitting returns in iXBRL.
‘If HMRC are determined to press ahead with some form of business records checks they should at least… consider doing further structured workshops for tax agents before commencing any visits.’
