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HMRC internal manual

Compliance Handbook

HM Revenue & Customs
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Charging penalties: suspending penalties: setting suspension conditions: specific conditions: SMART examples: ITSA example

ITSA example

Number Description Action
1 How the inaccuracy arose The ‘Return’ and accounts contain expenses claimed which are of a personal nature and not allowable as a deduction from profits.

The person admits he is not very good at keeping invoices and receipts, and can’t really remember what each item was for. He doesn’t like keeping computer records.

  2 Specific conditions set - SMART criteria not met  To put this right the caseworker sets the following condition.

Please ensure you do not claim expenses which are not allowable deductions when completing your 2010/11 and 2011/12 Self Assessment return.

The above example is not SMART because it is not a ‘condition’ but the end result. We want the person to stop claiming expenses which are not allowable deductions.

  3 How to make the specific conditions SMART To make the above example SMART the caseworker needs to specify the actions the person needs to take, and the processes they want the person to put in place, which will ensure the inaccuracy does not reoccur. For example, the caseworker should ask the person to:

Retain all invoices and receipts of all the expenditure and outgoings met by the business from now and for the future and use those records when completing the return (Specific and time bound).

Additionally, ask the person to keep a manual record of all outgoings met by the business identifying:

  • the name and address of the recipient of the payment
  • the purpose of the expenditure
  • if the payment is of a personal or business nature
  • if the payment is allowable as a business expense.

All the above conditions are: Achievable, Realistic and Measurable.

  4. Methods of checking the suspended conditions to ensure they have been met The caseworker should be satisfied that the processes/systems put in place comply with the suspension conditions, and will prevent the careless inaccuracy from happening again.

The checks can be made by:

Telephone: It is not sufficient to simply ask for confirmation from the person that the necessary changes have been made. The caseworker must ask questions about how the person made these changes and how he now records expenditure.

If the caseworker is not satisfied that the person has complied with the SMART conditions, they can request copies of the records, or even consider a visit to see the new processes/systems put in place.

Correspondence: Simply asking the person for confirmation that the changes have been made will not be enough. You should ask for evidence of this. The evidence can be documents or any other records, for example, a copy of a current purchase ledger or a cashbook covering the limited period.

Visit: In some cases the caseworker will need to make the checks by visiting the business and seeing the new processes/systems put in place.