Businesses could face £3,000 fines for bad records

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Concern that HMRC spot checks are merely revenue raising exercise.

A HM Revenue and Customs consultation could lead to the implementation of spot checks on company records, which the Federation of Small Businesses has warned will be used purely as a revenue raising exercise.

The consultation, called 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.

The FSB has said that it is concerned that the consultation lacked information on how HMRC would choose businesses and how they would 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.

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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, raising further concern that the process is solely going to be used 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.

FSB economic, tax and finance committee chairman Roger Bibby said: “FSB research has shown that one in 10 small firms spend 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."

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