Business Records Checks - An Expert Guide for Businesses


Since late 2012, HMRC have undertaken to regularly check the business records of businesses to see if they are adequate and accurate. So what happens when HMRC decide to check your business records and how can Mitchell Charlesworth help?

Mitchell Charlesworth's tax experts have put together the following "Business Records Checks - Guide for Businesses" that you can download, print and share as you require which should answer the most frequently asked questions.

Business Records Checks - A Guide for Businesses ImageDownload your free Business
Records Checks Guide here

Since 2012, HM Revenue & Customs (HMRC) have been undertaking checks on how businesses keep their records. Ultimately, if your records are found to be insufficient following these checks and follow up visits, you could be faced with a penalty.

This strategy particularly affects cash businesses, as HMRC believe these types of business will not be keeping adequate records (based on risk assessments they have carried out).

How can Mitchell Charlesworth help your business?

1. Businesses are advised that members of Mitchell Charlesworth's Premier Protection - Investigation Insurance, a service that has been set up to protect firms against the costs of dealing with HMRC investigations, would be covered should HMRC choose to check their records.

2. Mitchell Charlesworth are also able to be in attendance should an HMRC officer decide to visit your premises.

3. If you are concerned that your firm's bookkeeping might not be up to standard, then contact our tax experts without delay to find out how we can help your firm with its record keeping, before HMRC come calling.

4. Moreover, if HMRC have already visited your premises and informed you that your records are not adequate, our bookkeeping team can help you get your records up to scratch before HMRC visit again.

What should good business records look like?

HMRC have not provided definitive guidance on what constitutes a failure in record keeping but best practice dictates that:

  • Businesses should keep a clear record of all monies paid in
  • Businesses should keep a clear record of all expenditure
  • Business records should be split by business and non business
  • Books should be balanced regularly
  • All business records are kept up to date

Checking your records are up to standard – Initial Letter and Phone Call

The request to check your records will often begin in the form of a letter from HMRC. This will then be followed by a telephone conversation in which you will be asked questions about your records.

The conversation with an HMRC officer will typically last around 15 minutes and the aim of the phone call is to establish whether you are completing your tax returns correctly and whether you are paying the right amount of tax at the right time.

From the replies you give, the HMRC officer will assess if you are likely to be able to submit an accurate tax return from your records and will decide during the call whether further action will be taken at this stage. This confirmation will be received in writing.

Should the HMRC officer decide that you could do with some additional help and support, they will tell you on the call and pass your details to HMRC's Business Education and Support Team who will contact you with information about self-help guidance and training.

However, if during this phone call the officer believes that you are at risk of keeping inadequate records, they will arrange for you to have a face to face visit. Your details will then be passed to a booking team who will arrange a date and time for your visit. This will be confirmed to you in writing.

What happens if HMRC decide to visit your business?

The visit by an HMRC officer will usually take around two hours. The officer will ask various questions about how you run your business and how you keep records currently

The visiting officer will then check a sample of your business records thoroughly. Usually this will be your records over the last four months but may go back a bit further in time.

If your records are adequate then your officer will tell you at the visit and you will receive confirmation in writing. Should you record keeping need improving, they will then discuss this with you (and your accountant if they are present). You will then be advised about what you need to do to make your records adequate and what will happen next.

Can Mitchell Charlesworth attend the visit with you?

Mitchell Charlesworth are able to attend the meeting with you as your professional advisor. Even if we do not currently act for you, you can use ‘form 64-8’ if you want to authorise Mitchell Charlesworth to speak to HMRC about your tax affairs.

It must be noted that even if you have a professional advisor, in the eyes of HMRC, you are personally responsible for your own tax affairs.

What are the potential outcomes of the visit?

1. If your records are adequate, your visiting officer will tell you during the visit and confirm it in writing.

2. Should your record keeping be found to be inadequate, you may have to pay a penalty. This will only happen after you have been given sufficient time to improve the quality of your records. HMRC will outline what improvements must be made and will give you help and support to do this.

HMRC will then arrange a follow up visit to check the improvements have been made. This is usually around three months after the first visit. If you have improved your record keeping so that your records are now adequate, HMRC will reduce the penalty to nil.

3. If you have not improved your record keeping to an adequate standard at this return visit, you will receive a penalty. The penalty is usually £500 for the first offence. For businesses in their first year of trading the penalty will be £250. Should HMRC find that you have deliberately destroyed any records, a penalty of £3,000 will apply (this may be reduced to £1,500 if only some of your records are destroyed).

4. After this second visit, HMRC will refer you for another business records check visit in two years time. Once again, if your records are found to be inadequate you will have to pay a new penalty.

What happens if HMRC believe your tax returns are inaccurate?

When HMRC visit your premises and check your records, they may believe that your tax returns have been inaccurate as a result of your business records. The officer will pass your details to an HMRC tax team who will then undertake a check into your tax return and will then contact you with the appropriate follow up steps.

If during the business records check if it is found that you need to register for VAT, PAYE or the Construction Industry Scheme, they will pass your details to the appropriate team.

Contact our tax team for more information:

For more information about how Mitchell Charlesworth’s tax experts can help your business with its record keeping and give you the peace of mind that, should HMRC decide to investigate your business, your records will be up to standard, contact our tax team or complete a quick enquiry form and we will be happy to get back to you directly.

Post a comment

Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales and authorised and regulated by the Financial Conduct Authority for investment business