Taxman eases off small firms... a bit

HMRC officeAndrew Milligan/PA Archive/Press Association Images

HMRC has decided to put a stop to spot checks for small businesses, which looked at how they kept their paperwork and could fine them up to £3,000 if they weren't bang up to date with their filing.

A review of the scheme, published on Friday, revealed it had failed in every way possible.

The failings

The 'Business Records Check' scheme was supposed to be a money-spinner, with the added advantage of forcing companies to keep better records, and hopefully spotting irregularities that may otherwise have escaped unnoticed.

In reality, the review found that it had raised far less money than planned, it had been poorly targeted at the wrong firms, and it had destroyed the relationships between the taxman and everyone it touched - from the businesses themselves to their accountants and broader business groups.

The review of what had only been a pilot scheme was damning. It said the "strength of feeling" against the scheme "cannot be overstated".

The scheme was on track to raise £124 million over four years. It's a substantial sum, but a drop in the ocean compared to the £600 million it was supposed to raise, and would have come at a massive cost. As a result the scheme has been halted.

The solution

So will HMRC leave struggling smaller business alone? Will they focus their attention on the multimillion pound firms squeezing their way around the system instead? Will they ease off the practice of issuing unaffordable fines for petty slip-ups?

Not exactly.

The scheme will be relaunched in the next financial year (so we only have a few months off). It will apparently change its approach somewhat. There won't be unannounced visits - which were massively disruptive for smaller business. Instead they will have to call or write ahead to let a firm know about a visit.

The checks will be better targeted at those companies which HMRC thinks are at risk of keeping inadequate records, and perhaps most importantly, there will only be a fine levied if the poor record keeping has already led to the company submitting an incorrect tax return.

Fair balance?

It still means smaller firms will have to keep good records, and may well be targeted by a scheme which could cost them a small fortune in management time and resources. It will still be yet another pressure that small firms don't need in difficult financial times, and one more thing for a business to worry about when it is already struggling desperately to keep its head above water.

However, it should stop them being descended on overnight and fined for a small slip up or two, and save the penalties for those who have let things go too far.

The question is whether this will be accompanied by a stepping up of pressure on the bigger players. Will big companies face the same levels of scrutiny and be held to account rather than being cut a deal by HMRC? Or will we still see big and powerful companies breeze past the rules that are threatening to bring our smaller companies to their knees?
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