From April HM Revenue and Customs (HMRC) will conduct tax spot-checks on up to 20,000 small businesses.
Any firm unable to back up their tax return faces a fine of up to £3,000.
The check-ups are part of the Government’s much-criticised Business Records Checks (BRC) scheme that aims to crack down on tax avoidance and evasion.
According to Accountancy Age, inaccurate PAYE returns from small to medium enterprises (SMEs) climbed to £900m from £600m during the 2010/2011 tax year, with HMRC attributing 50% of this ‘lost’ tax revenue to underpayment by SMEs.
HMRC urges SME owners to complete their tax return carefully, citing inadequate records as a principal reason for underassessment and under-payment of tax
Yet some MPs tell a different story, publishing a report stating that HMRC is owed around £25bn (of a £42bn total tax deficit) by large companies alone.
Margaret Hodge MP, Chair of the Committee of Public Accounts, says that this figure represents “a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations.”
As it stands, all businesses must file an annual tax return with HMRC, reporting figures including income and disallowable expenses. However, sole traders and partnerships with a turnover of £15m or less are not required to provide their accounts with their tax return.
Under the BRC SMEs could be asked to produce invoices and receipts, cash books, sales and purchase ledgers, wages books, miscellaneous income, bank statements and money taken out of the business personal use, among many other things, if HMRC queries their tax return.
HMRC is to strategically review the BRC, but whatever its findings, bookkeeping will continue to be both a legal requirement and essential to running an efficient small business.
