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HMRC accused of ‘double standards’ over business records checks pilot

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HMRC has begun a detailed review of its business records checks programme, having recognised that the project would have benefited from more detailed consultation.

The Independent reported in a front-page article today that HMRC faced accusations of "double standards" over plans to target thousands of small businesses with spot checks, despite "letting big companies such as Goldman Sachs off millions of pounds in tax".

An HMRC spokesman told Tax Journal: "Poor quality record keeping costs the UK around £6 billion a year and this has to be addressed, but we recognise that our approach needs to be more collaborative and supportive."

PKF warned last September that an extended programme of business records checks would "waste everyone's time". The firm suggested that HMRC staff employed on the program could be put to better use. The Chartered Institute of Taxation queried the legal basis for applying penalties before a tax return has been submitted, and expressed concern over misunderstandings within HMRC as to what constituted adequate records.

HMRC was planning to complete up to 12,000 checks by the end of the current financial year, and planned a further 20,000 checks for 2012/13. It cited OECD research suggesting that poor record-keeping was responsible for loss of tax in up to two million SME cases each year.

The CIOT reported on 22 December that HMRC wished to reassure taxpayers and agents that "HMRC will not (except in extreme cases such as where a taxpayer has no records or has destroyed them) be seeking to use the record-keeping penalty provision during the pilots".

The CIOT published an HMRC statement saying: "HMRC and the tax profession share the overriding policy objective, namely to ensure that businesses’ record-keeping meets the necessary statutory requirements and that their records are sufficient to enable a correct and complete tax return to be submitted within the time limits.

"HMRC are grateful to the representatives of business and the agent bodies for agreeing to work with them on the review and look forward to developing a shared understanding of how the overriding policy objective can be implemented with representatives’ full support."

The Independent quoted Priti Patel, Conservative MP for Witham, as saying she had dealt with numerous examples of "harassment" by HMRC. "This is the persecution of small businesses at a time when they are already facing a very, very hard time," she said.

Patel added: "The attitude of HMRC to small businesses is frankly disgraceful when they are blatantly doing deals with large firms which have allowed them to escape millions of pounds in tax liabilities. It seems as though HMRC sees small businesses as low-lying fruit to meet their targets. That kind of persecution is outrageous."

An HMRC spokesman told the paper that HMRC would undertake a review of the project in consultation with professional bodies. The review would examine whether the current approach was the best way of achieving the policy objectives. In the meantime, HMRC would continue with "a limited number" of business records check pilots and would evaluate the results as part of the review.

HMRC said today that it had planned to review the project during 2012. HMRC said today that it had planned to review the project during 2012.

A spokesman told Tax Journal: "Working in close consultation with key tax and business stakeholders we will look carefully at the overall aims and purpose of the BRC to improve our approach to the problem of poor business record keeping. Poor quality record keeping costs the UK around £6 billion a year and this has to be addressed, but we recognise that our approach needs to be more collaborative and supportive."

‘Damning indictment’

The Independent also quoted Chuka Umunna, the shadow Business Secretary, as saying that concerns raised by the Commons Public Accounts Committee (PAC) – that HMRC had left itself open to suspicion that relationships with some companies were "too cosy" while smaller firms had not been given the same service as large firms – must be addressed immediately to restore trust.

The PAC warned in a report published in the week before Christmas that "systemic issues" surrounding HMRC’s handling of tax disputes must be addressed with "the utmost urgency". A proper separation between negotiation of tax settlements and their authorisation was needed, and HMRC "must address issues of accountability so that Parliament and the public can be satisfied that the best value is secured".

Margaret Hodge, PAC Chairman, said the committee’s report was a "damning indictment of HMRC and the way its senior officials handle disputes with large corporations". But HMRC claimed that the report was based on "partial information, inaccurate opinion and some misunderstanding of facts".

Tax Journal will have more on the PAC report shortly.