THE Federation of Small Businesses (FSB) has raised concern that an HM Revenue and Customs (HMRC) consultation, which closed at the end of February, could lead to implementation of spot checks on company records as a way of revenue raising.
The consultation, ‘Business Records Checks’, states that 50,000 small businesses will be targeted by HMRC agents in order to check that their business records meet minimum reporting standards. If not, a fine of up to £3,000 will be levied, with the potential to raise £600 million over the next four years.
FSB warns on 50,000 small business target revenue grab, failure to record business mileage
The FSB says the consultation lacked information on how HMRC would choose businesses and carry out the checks. Another worry is that HMRC did not draw up details of what standard criteria would be used to assess each business, and that it will be difficult to justify a ‘significant failing’, as firms across sectors differ so much.
Additionally, the document said that HMRC would raise £600 million over four years, but no breakdown of the model used to reach the figure was included. The FSB said that raised the further concern that the process is solely to raise revenue for the department.
The FSB has recommended that the charging process is left as it currently stands, and that small firms are given the opportunity to improve their records if processes are deemed inadequate. It would not be fair to impose a ‘first offence’ penalty, where the business is unaware of the offence that has been committed.
Guidance should also be produced, so that all small businesses know what actions they can put in place to ensure they are compliant.
Roger Bibby, FSB economic, tax and finance committee chairman, said: “FSB research has shown that one in 10 small firms spends more than six hours per week fulfilling their tax responsibilities. However, many small businesses do not have a dedicated finance or accounting department and will be unaware of the intricate details of tax obligations – especially when starting out.
“Rather than imposing fines which could cripple some small firms, it would be more pertinent for HMRC to move to a system where small businesses are encouraged to improve record keeping and understand their tax obligations better,” continued Mr Bibby.
“At a time when the government is looking to promote growth and get the recovery on a firmer footing, adding to the bureaucracy that a business owner has to deal with through additional checks, goes against what the government is trying to achieve,” he added.
David Goodall, a former technical specialist for car benefits at HMRC and now head of tax and policy advice at fuel and mileage audit company TMC, also added that HMRC would be inspecting how small businesses record mileage claims more closely.
“Businesses need to be aware that HMRC is now very focused on the way they record and check mileage claims. They can expect to be challenged over any errors or omissions in their records that might have led, even inadvertently, to underpayments of tax on cars or fuel.”