The decision follows a review prompted by feedback from professional and business bodies who argued that the tax department’s “helping hand” approach to paperwork was more of a hindrance.
After reviewing the record check pilot programme and listening to these views, HMRC director of local compliance Richard Summersgill acknowledged “the need for a fresh approach”.
The results of the review published on Friday 3 Febraury, showed that of 2,437 business records checks carried out up to 4 January 2012, 28% of businesses received an “amber” rating showing the existence of some issue with their record keeping, and another 11% were rated as “red”, bad enough to require a follow-up visit.
The scheme has had a fraught gestation period, with advisers concerned about the visits turning into fishing trips for tax investigations and the stance of their professional indemnity insurers. To make matters worse, HMRC then embarked on a pilot programme last April without informing professional representatives.
While publicly Summersgill and senior HMRC figures continue to talk up the merits of helping businesses improve their record-keeping, the scheme was trimmed back from a planned 50,000 to 20,000n visits a year when the full roll-out began in September 2011.
Even with the amended programme, HMRC estimated the programme would generate benefits worth £124m from improved record keeping (and tax receipts) through the period covered by the government’s current spending review. The speed at which HMRC appeared to be implementing the programme was one source of discomfort for advisers, but following the latest review, all new appointments will be put on hold until a new process is devised and put in place after the turn of the financial year in April.
But the sting in the tail is likely to remain. Further recommendations in the latest paper call for a potential “tax intervention” if companies with inadequate records fail to improve. “In extreme circumstances a penalty might be applicable,” the internal document said. “If a business is referred for a full audit and it is found that tax returns submitted before, or after, the referral were inaccurate and that inaccuracy was a result of inadequate record keeping then a record-keeping penalty should be charged in addition to any other penalty due.”
Extract from accountingweb.com