HMRC plans inspections

Freelancers who operate using limited companies could be the target of a new round of inquiries from HM Revenue & Customs, which is cracking down on poor record keeping at small businesses.
HMRC is to relaunch a programme of business record checks (BRCs) this month, following the suspension of the process in February in order for the agency to review its progress. Any business with fewer than 250 people and an annual turnover of less than £30m could find itself subject to a BRC.

Businesses targeted for inspection will initially be sent letters warning them to expect a phone call from HMRC. This call will then require the business to go through a questionnaire on its record-keeping, with HMRC then deciding whether further action is required. Where it is, a formal visit will follow.

In the first round of the checks last year, which targeted almost 3,500 companies, around 10 per cent of businesses received full visits from HMRC staff following the check-ups.

The latest BRC initiative will focus on “customers who are more likely to be at risk of having inadequate records”, HMRC said, though it has not provided any details of target groups. Tax experts suggested that very small businesses could find themselves in the firing line, along with businesses that deal mostly in cash payments.

The agency has so far not applied penalties to businesses found to be falling short of their statutory duties, but it is possible it could seek to do so. Some groups are concerned HMRC could even try to penalise companies before they have submitted their tax returns, though the agency makes no mention at all of fines or levies on its own web guidance on BRCs.

“We continue to be extremely concerned that HMRC are creating an impression, wrongly in our view, that these records checks are mainly for educational purposes,” the Low Incomes Tax Reform Group warned.

“It is critical that businesses understand that these are serious compliance checks with potentially large penalties being levied on those who keep poor business records.”

By David Prosser, Editor of Freelancing Matters magazine