The Finance
Act 2008 brings together a number of issues that are going
to affect your future relationship with H M Revenue &
Customs.
In the past regular visits have been restricted to a
VAT audit and possibly a payroll check. Additionally inspectors
may have picked up on areas of concern in your annual
tax return and launched a formal aspect, or full enquiry
into your affairs.
The Finance Act 2008 takes this whole process to a new
level!
In future you will be penalised if HMR&C believe
you have not taken reasonable care in preparing any information
(accounting or otherwise) that underpins any return made
to them. It is likely that any under-declared tax that
is discovered will be subject to a penalty approaching
30%, and if HMR&C can prove negligence or fraud this
could rise to 100%.
The way in which these errors will be discovered are
set out in changes to HMR&C's legal powers to investigate
your returns. It is envisaged that an officer of HMR&C
might begin a compliance check in respect of any of the
relevant taxes for one or more of a number of purposes.
These include checking that:
-
a tax return, amendment to a return or claim is correct;
-
statutory record keeping requirements are being met;
-
tax has not been underpaid or over-claimed; or
-
any issues concerning possible tax avoidance are
considered.
Accordingly you can expect that future visits by tax
officers will take an interest in the care that has been
taken to keep proper accounting records. In particular
how these records affect your VAT and payroll returns.
Access to information.
HMRC have included changes to the law in the Finance
Bill 2008 that would give them rights regarding access
to records that underpin your returns.
Accordingly there is to be no right to appeal against
HMRC seeing records.
Another interesting development recognises the use of
computers in storing relevant data. HMRC are quoted as
saying:
"An authorised person may, at any reasonable time,
obtain access to, and inspect and check the operation
of, any computer and any associated apparatus or material
which is or has been used in connection with a relevant
document."
This would provide officers of HMRC access to any computer
which has been used in connection with the accounting
records (including supporting documents) required of the
taxpayer. This is a new development, as normally taxpayers
would expect HMRC to have access to the records themselves,
but not the computers on which the records have been prepared
or maintained. The practical implications of this are
significant.
You may want to ensure that no critical business information
is kept on the same computer as the accounting records,
so that risk of breach of confidentiality, or even business
disruption, is kept to a minimum should HMRC require access
to the computer during the course of an enquiry.
Visits will be made in-year to check that the record
keeping provisions are being complied with during the
accounting period, and given the significant concern expressed
about the quality of accounting records by HMRC and the
impact on tax take, this is likely to be the main HMRC
compliance contact that small businesses will have in
the coming years.
What to do?
For most businesses the new rules will have effect for
accounting years ending 31 March 2009. Therefore the records
that you are presently updating for this period of account
may be open to inspection. Can we suggest you contact
us if you are interested in a formal review of your accounting
and related administration systems, in order to minimise
any possible financial consequences of future HMR&C
visits.
Click here for a call back from
our office regarding this article. 
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