Emily Coltman, chief accountant at FreeAgent, provides advice on staying on the right side of the taxman when it comes to compliance checks.
In 2012, HMRC relaunched its Business Record Check programme, designed to ensure that small business owners are keeping their records up to date. The Business Record Check is just one part of HMRC’s compliance checks, designed to ensure that business owners pay the right amount of tax at the right time.
Compliance checks can be a stressful reality for any business, but there are ways that you can stay on the right side of the taxman and make the process as painless as possible.
Don’t put off the paperwork – keep your books up to date
The most important thing you can do is to make sure that your business books are updated regularly. This isn’t just because HMRC requires you to, but it’s also essential to know where you are in your business. When your records are up to date, not only can you pick up on crucial information quickly (such as whether customers haven’t paid you on time), you can also easily respond to any HMRC enquiries without the stress of searching for scraps of paper!
To make sure your books are up to date, ensure that:
– your bank account balance matches the balance in your accounts
– you have issued and kept a copy of invoices for all money received
– you have copies of receipts for all costs in your business – remember that in most cases, HMRC will accept scanned receipts instead of hard copies!
Avoid accounting errors that trigger an automated check
It’s always essential to make sure your records are as accurate as possible, but there’s an extra incentive for tackling any confusing parts of your books: unusual activity in your tax records or accounts could flag you up for HMRC review.
While some HMRC checks are entirely random, most are triggered by HMRC’s central risk team, who use sophisticated data mining tools to spot unusual activity on accounts, or trends in particular industries. For example, HMRC detects companies with activity that falls outside the normal parameters in their industry (see appendix C in HMRC’s document), and flags them for potential review.
To keep HMRC’s systems happy, it’s important to make sure that your records are not only up to date, but as error-free as possible. If you’ve had a problem lurking in your books that you’ve been vainly hoping would just go away, now’s the time to ask your accountant for guidance or contact HMRC to sort it out. And to help keep the errors at bay and save time, try automating some of your day-to-day bookkeeping work.
File your tax and VAT returns on time
HMRC is also more likely to review your tax filings when they are made late, so making sure you’re staying on top of your tax obligations can help you stay on the right side of HMRC.
When HMRC is happy, you’re happy too!
One of the best parts about staying in HMRC’s good graces is that your business will benefit from tidy, up-to-date records. You’ll not only be ready if HMRC has an enquiry, but you’ll also know how your business is doing on a day-to-day basis, instead of waiting until the end of the month, quarter, or even tax year to find out about any problems or potential opportunities.