Business Records Checks by HMRC

On 1 November 2012, HMRC started a ‘new approach to Business Records Checks’ (BRCs). The target audience of these checks are small and medium sized businesses.

What are Business Records Checks?

In the context of income tax, a BRC is a check by HMRC that the records of a business are adequate to allow a taxpayer to submit an accurate income tax return.

HMRC consider that a large number of small and medium sized businesses are making errors which are not individually significant but the cumulative effect for the total tax collected from such businesses is very high. HMRC therefore see BRCs as a cost effective way of checking the adequacy of business records.

What are adequate records?

This is one of the difficulties. Unfortunately there is no precise answer to this question.  For a trading business, the following would be regarded as adequate records:

  • a record of all sales and takings, including cash receipts. For example till rolls, sales invoices, bank statements, and paying-in slips;
  • a record of all purchases and expenses, including cash purchases. For example purchase invoices, receipts, bank and credit card statements, and cheque book stubs.

Why might a business be selected?

HMRC select a number of businesses based on their view of businesses which are more likely to be at risk of having inadequate records. The criteria for HMRC’s computer driven risk analysis is not known but, for example, a business with a lot of cash transactions is likely to be seen as higher risk.

What is involved in a BRC? 

After the selection process the following may happen.

  • HMRC will contact the business, initially by letter, advising that the business has been selected for a BRC and HMRC will get in touch, normally by phone, within a few days.
  • In the phone call, HMRC will ask approximately 15 questions about the business records to help them determine the adequacy of the records.
  • From the replies given the HMRC officer:
  • will assess whether you are likely to be able to submit an accurate tax return from your records. No further action will be taken at this stage;
  • may feel you could do with some additional help and support to put your records in order. The HMRC’s Business Education and Support Team will subsequently contact you;
  • may decide you are at risk of keeping inadequate records in which case they will state that you need a face to face visit.
  • In each case, HMRC will tell you during the call.

What should you do if you receive the letter about BRC?

If you do receive a letter, we would recommend that you contact us as soon as possible. We can then advise you as to whether it is better if we contact HMRC on your behalf. We may be able to answer the questions without you having the stress of answering them.

If you would prefer to deal with the phone call yourself, then do so but if as a result of the call, HMRC state that you need a face to face visit, please contact us before the visit. We will be able to attend the meeting to ensure that the HMRC officer comes to a reasonable conclusion as to the state of the records and what action may be necessary to remedy any deficiencies.

Please do not take the prospect of these visits lightly. If HMRC consider that the records are inadequate and no changes are made, HMRC may apply a record keeping penalty (usually £500).  That won’t necessarily be the end of the problem as when your tax return is submitted, HMRC are more likely to open an enquiry into the reported profits.

If you would like any more information please contact us.

Payroll – In Real Time

From 6th April 2013 there will be significant changes in the way that payroll information is submitted to HMRC under Real Time Information (RTI).

Please click here to read our briefing which provides an overview of these changes.

The new procedures will not only impact on how the information has to be submitted but also the timing and this will result in employers needing to change their payroll procedures.  Whether you operate your own payroll or your accountant deals with the payroll for you it is important to be aware of the imminent changes.

If you calculate your own payroll, you need to ensure that your software is RTI compatible and that you are aware of your obligations as from 6 April 2013. If you operate sage payroll, then V16 onwards is RTI compatible and we can provide training in February & March 2013 if required.

Please contact us if you wish to discuss this with a member of our team.

P.S. Since our briefing was compiled, HMRC have changed the Payment Submission deadlines for casual workers etc paid in cash on the day.  The up to date legislation can be found at 

2012 Autumn Statement

On Wednesday 5 December the Office for Budget Responsibility (OBR) published its updated forecast for the UK economy. Chancellor George Osborne responded to that forecast in a statement to the House of Commons later on that day.

In the period since the Budget in March a number of consultation papers and discussion documents have been published by HMRC and some of these proposals are summarised here. Draft legislation relating to many of these areas will be published on 11 December. We will provide an update for you on 12 December if significant changes are announced.

Our summary also provides a reminder of other key developments which are to take place from April 2013.

The Chancellor’s statement

His speech and the subsequent documentation was a ‘mini-Budget’ announcing tax measures in addition to the normal economic measures.

Our summary concentrates on the tax measures which include:

  • Changes to personal allowances and tax bands
  • Changes to pensions reliefs
  • A tenfold increase in the Annual Investment Allowance to £250,000
  • A further reduction in the main rate of corporation tax
  • Announcements regarding the General Anti Abuse Rule and other ‘abusive arrangements’.

To read our summary click here 

This is no fairy tale – A Guide to the Child Benefit Change

The ‘high income’ Child Benefit charge is set to come into effect from 7th January 2013 and the Government estimate that it will impact on 1.2 million families. You may have received a letter from HMRC regarding this.

To help you to decide if this affects you, please to read our briefing which provides a clear and concise summary of what you need to know about the impending Child Benefit charge. It highlights some of the practical problems to be considered in deciding whether the charge applies, and on whom it falls, as well as identifying what action could or needs to be taken.

Please note that this does not affect your 2012 self assessment tax return, but when your 2013 tax return is completed (next year) your accountant will be asking about details of the Child Benefit that you have received during the period from 7 January 2013 to 5 April 2013, as you may be required to pay this back unless you have elected not to receive it.

Please be aware that the Child Benefit charge is completely separate to the Child Tax Credit which is administered by a separate HMRC system and is not reportable on your self assessment tax return.