During a business records check (BRC) an HMRC officer will view the business records of the current accounting period and assess whether those records are ‘adequate’. In this context ‘adequate’ should mean the records are sufficient to compile accurate tax and VAT returns, but the BRC brief implies the HMRC officer will be looking for the following errors in the business records:

• Understated sales;
• Overstated expenses; and
• Private expenditure claimed as business costs.

If the HMRC officer concludes the business has failed to keep adequate records he can impose a penalty of up to £3,000.

HMRC tested their BRC programme between 4 April and 15 July 2011, during which up to 800 businesses were advised about their records, but no penalties were levied. However, since mid September HMRC has expanded the BRC programme and is increasing the number of HMRC officers involved from 30 to 120. HMRC plan to conduct approximately 12,000 BRC visits before 1 April 2012, and a further 20,000 BRC visits in 2012/13. On those numbers at least one of your clients is likely to be subject to a BRC in the next 18 months.

Business who were visited in the first stage of the BRC programme, and who were judged to have issues with their record keeping, are receiving follow-up letters from HMRC requesting a repeat visit; ‘to check that the appropriate improvements have been made.’ Remember the records under inspection are those raw documents that have not yet been sorted or vetted by someone who understands exactly which expenses can be claimed for tax purpose

In this second stage of the BRC programme HMRC is prepared to impose penalties for serious record keeping failures. However, certain professional bodies, including myself are not convinced of the legal basis for charging such penalties, before the tax return has been submitted.

Employer Annual Returns must be sent to HMRC by the 19 May filing deadline. Failure to do so will almost certainly result in a late-filing penalty. In previous years, an extra-statutory concession gave employers extra time before HMRC charged a penalty, but this has now been withdrawn.

And from this year, employers will be liable to a penalty if they file their annual return on paper (with some very limited exceptions, such as certain individuals who employ their own carer). Last year, no penalty was charged for employers with five or fewer employees, but these transitional arrangements have now ended.Penalties

Very quietly HMRC have announced that there is a new CIS penalty regime being brought in.

From October 2011, the penalties for late or non-filing of a contractor’s monthly return within the Construction Industry Scheme are changing.

The first return falling within the new penalty regime will be the return for the month ending 5 November 2011.

The following penalties will apply to that return and all subsequent months’ returns that are not filed or filed late:

• A fixed penalty of £100 immediately a return is late.
• A second, fixed penalty of £200, two months after the filing date if the return is still outstanding.
• If the return is still outstanding six months after the issue of the first penalty, a tax-geared penalty is charged which is the greater of £300 or 5% of the amount of deductions shown on the return.
• If the return is still outstanding twelve months after the issue of the first penalty, a further tax-geared penalty is charged which is the greater of £300 or 5% of the amount of deductions shown on the return. Higher levels of penalty apply where, as a result of the failure to file the return on time, information has been deliberately withheld.

Interest will be chargeable on any penalty paid late.

The legislation for the change is at schedule 55 Finance Act 2009.

Paragraph 13 of Schedule 55 to Finance Act 2009 introduces a penalty capping provision. The fixed penalties within the capping period will not exceed a maximum of £3,000. The capping period starts on the day of commencement (the date the contractor advises HMRC that they will first pay, or have first paid, a subcontractor) until the date they first file a CIS monthly return. Tax-geared penalties of 5% of the amount of deductions shown on the returns will also apply in the capping period where the return is submitted over 6 and 12 months late. There will be no fixed minimum charge of £300 when the capping period applies.

Mistakes can be expensive so contact EICG on 0800 917 9176 to find out about our Construction Industry Scheme (CIS) reviews

A £158BN hole in the public finances means that HMRC are being used to try and raise extra cash for the Treasury, as quickly as possible and that will mean easy targets, so small and medium size firms, anyone in the construction industry are in the direct firing line for:

employer compliance reviews

PAYE/NIC investigations

Employment status reviews

tax investigations

you name it and they are heading your way and don’t think it won’t happen to you – it will, so why not take advantage of the special deal that EICG is running this month on PAYE/NIC healthchecks and Construction Industry reviews, call us today on 0800 917 9176 to see how we can help you avoid being a victim

HMRC announced in June that Extra Statuory Concession B46 (ESC B46) allowing a seven-day grace period for late employers’ and contractors’ returns will cease from 31 March 2011.

ESC B46 established the principle that penalties would not be charged when employers and contractors submitting tax returns and CIS forms had taken “all reasonable steps” to file their returns on time, but were not able to do so due to unforeseen circumstances such as postal delays.

With the advent of online filing, which is required for P35s and P14s and will become mandatory for Corporation Tax returns from 1 April, HMRC considers the concession to be “redundant” because the delays it was intended to address will no longer happen. Returns must therefore reach the department by their due date or incur a late filing penalty of £100.

Confirming the new penalty regime HMRC explained: “Any customers filing a return late will, as now, be able to request us to remove any penalty, if they believe they had a reasonable excuse for the delay in filing. We will consider every case on its own merits. Customers can also appeal against the penalty to a Tribunal.”