Businesses must keep records to fill in their tax returns correctly, pay the right tax at the right time to avoid interest and penalties.
HM Revenue and Customs (HMRC) check on how businesses keep their records. If HMRC decide to look at your business records they will usually contact you by letter. You must keep business records to fill in your tax returns correctly, and pay the right amount of tax at the right time to avoid interest and penalties.
When HMRC contact you by letter
HMRC will write to you and ask you to telephone them to discuss your records. When you phone they’ll ask you questions to help them work out if you’re keeping the business records you need to meet your legal responsibilities. The telephone call should take between 10 and 15 minutes.
From the replies you give, the HMRC officer:
- will assess whether you’re likely to be able to submit an accurate tax return from your records
- will tell you during the call and will confirm it in writing, if no further action will be taken at this stage
- may feel you could do with some additional help and support - If so, they’ll tell you on the call and give you link to help and support to businesses
- may decide you’re at risk of keeping inadequate records in which case you would need a face to face visit - they will tell you this on the call
- may pass your details to the visiting booking team who’ll contact you to arrange a suitable date and time for the visit, and confirm that in writing
When HMRC visit your business
If HMRC think you need a face to face visit, they’ll contact you to agree a date and time. The visit will usually take around 2 hours.
On the visit, the HMRC officer will:
- ask you to explain how you run your business
- note how you keep your business records
- check a sample of your current business records - usually for the last 4 months
- arrive at a decision about whether your business records are adequate or not
If your records are adequate, the visiting officer will tell you at the visit and then confirm it in writing a few days later. This will be the end of your business records check.
If the visiting officer finds your record keeping needs improving, they’ll discuss this with you and your agent (if they’re at the meeting). The officer will advise what you need to do to make your records adequate and what will happen next.
Using a professional adviser
It isn’t essential, but if you’ve an accountant or other professional adviser, you’ll be able to invite them to attend the visit.
If you don’t have an adviser you can use form 64-8 if you want to authorise one to speak to HMRC about your tax affairs. Even if you have a professional adviser, you’re personally responsible for your own tax affairs. You must make sure all the information your adviser supplies to HMRC is accurate.
Possible outcomes of a check
If there are no problems with your records
If your records are found to be adequate the visiting officer will tell you on the visit and then confirm it in writing a few days later. This will be the end of your business records check.
If you need to improve your record keeping
If your records are inadequate you may have to pay a record-keeping penalty. But before this happens, HMRC will give you the chance and more time to bring them up to an adequate standard. HMRC will tell you what improvements you must make, and will offer you as much help and support as you need to achieve this.
HMRC will arrange a follow up visit to check that you’ve made the improvements. This will usually be within 3 months of the first visit.
If at the follow up visit you’ve improved your record keeping so that your records are adequate, HMRC will reduce the penalty to nil.
If you don’t improve your record keeping
If at the follow up visit HMRC find that your records have still not improved to an adequate standard, they will apply a penalty. The penalty is usually £500 for the first offence. For businesses in their first year of trading the penalty will be £250.
If during the business record check HMRC find that you’ve deliberately destroyed your records, they will apply a penalty of £3,000 (this may be reduced to £1,500 if only some of your records are destroyed).
In cases where HMRC find inadequate records they’ll refer you for another business records check visit in 2 years time. If your records are again found to be inadequate you’lll have to pay a new penalty.
If your tax needs to be checked
If, during the business records check, HMRC identify that your tax returns may be inaccurate, the visiting officer will pass your details to other HMRC teams. They may then contact you to carry out a check into your tax return. This may happen either because you tell HMRC that you’ve underpaid your tax, or they identify that you could have a significant tax liability.
If during the business records check HMRC find you need to register for VAT, PAYE or the Construction Industry Scheme they’ll pass your details to the appropriate team.
From 20 October 2015 Business Record Checks have been wound down. Whilst HMRC will no longer initiate new business records checks, we remain committed to helping businesses to keep better records.
If you have received an initial letter from us we will still complete the telephone questionnaire. If required a visit will be arranged.
We will continue to support businesses through our online learning packages and the investment we are making into digital tax accounts which will mean businesses can easily interface with HMRC from their own accounting software.