A shock pilot to work the bugs out of the taxman’s financial record checking scheme has triggered angry responses from businesses and tax advisers.
Up to 2,000 businesses, including student rentals and letting agents, can expect the taxman to call and inspect their bookkeeping only a day after consultation on the scheme closed.
The business check consultation documents hinted that HM Revenue and Customs (HMRC) might carry out some preliminary checks, but no one expected them to start so soon.
HMRC has confirmed around 30 inspectors in Sheffield, Liverpool, Newcastle and Scotland are taking part in the exercise before the scheme goes live across the UK later this year.
The test target areas are all places with high numbers of student letting businesses.
HMRC is playing down the inspections as a trial of the system.
“We do not expect to charge any penalties unless there is evidence of deliberate loss or destruction or complete absence of business records,” said an HMRC spokesman.
The business records check is due to start in July as part of the HMRC clamp down on tax cheats.
According to HMRC announcements, 50,000 businesses can expect a visit every year – and if they do not keep records in line with HMRC advice, they could face penalties of up to £3,000.
The scheme represents a new approach for curbing tax avoidance, as in the past, HMRC could only check up on taxpayers who submitted returns. With the new scheme, HMRC can now visit suspected tax avoiders to see if they should be submitting a tax return.
A new power also lets tax inspectors call unannounced on the homes of the self-employed to spot check records.
The HMRC guidelines for keeping good business records are available here
http://www.hmrc.gov.uk/factsheet/record-keeping.pdf
The Chartered Institute of Taxation (CIOT) led the charge of protests against HMRC, who agreed to water down their letter to taxpayers as a result.
Anthony Thomas, CIOT Deputy President, said: "HMRC's reassurance that this is a 'test and learn' pilot where no penalties will be levelled, other than in exceptional circumstances, is welcome.
“They should have made this clear to tax advisers, business organisations and, above all, those taxpayers - represented and unrepresented - they are targeting, from the outset.
"By not doing this HMRC gave the strong impression that they were proceeding with this project prematurely.”
