During 2011, we regularly expressed concern over the poor implementation of HMRC’s Business Records Checks (BRC) programme, under which the ‘real time’ records of 20,000 small businesses were to be closely scrutinised each year, with the threat of penalties of up to £3,000 for those traders whose paperwork did not come up to scratch. There is clearly a problem with a minority of small businesses keeping very poor records, but the original inspection target of 50,000 businesses per year always seemed unrealistic, and even the revised target of 20,000 seemed, at best, optimistic, given how stretched HMRC’s resources have been.
We noted that, allowing little time to properly consider external responses to a consultation document, HMRC had unexpectedly launched a BRC pilot on unsuspecting small traders struggling to cope with an increasingly challenging business environment.
We found it difficult to reconcile HMRC’s claim that just 120 BRC staff would raise an extra £600m for the Treasury over four years and questioned whether these HMRC officers might in fact be better utilised on ‘real’ tax investigation work.
As we move into 2012, HMRC at last appears to have been stung by the strength of anti-BRC feeling amongst the small business community and by the comments of backbench MPs. HMRC is now believed to be actively reviewing the BRCs initiative in the light of the many criticisms and its findings from the pilot programme. While full consultative engagement with small business representatives is now expected, we envisage an outcome under which HMRC reconsiders the position and goes on to create a much better targeted BRC programme aimed at those small businesses where poor records are truly at risk of leading to under-declarations of tax.