While most of us were trying to figure out the optimum time to roast a turkey, or thinking up interesting anecdotes we could tell our visiting relatives, HMRC were racking their brains for new methods of collecting money from freelancers, contractors and SMEs.
Their latest crackdown will target poor bookkeeping with hefty £3,000 fines in the second half of 2011. HMRC say that businesses will actually benefit from this encouragement to stay on top of their accounting procedures, suggesting it will lead to better finance management.
Are HMRC rubbing their hands together because it’s cold? I suspect not.
The initiative will target 50,000 of the worst offenders for “significant record-keeping failures.” The Revenue estimates that 40% of all SMEs suffer from poor record-keeping, and unpaid taxes are likely to be due from these same businesses. However, even if you’re not found guilty of having unpaid taxes, you can still be fined: the reason being that HMRC want to tackle the root cause of unpaid taxes – and in many cases they believe this is simply shoddy record-keeping.
This may seem harsh, but the Government do have legal powers in this respect: there is a legal requirement for all businesses that are required to make a Self-Assessment or a Corporation Tax Self Assessment to maintain the records they need for a correct and complete return.
The main test of whether your business records meet legal requirements hangs on whether or not they are, in HMRC’s words: “…’capable’ of being turned into a correct and complete return of tax liability. Neither a lack technical ability nor a lack of ‘neatness’ is necessarily a bar to fulfilling those obligations.”
Many small business owners find the process of keeping their accounts in order an administrative burden akin to rolling a lead rock up a vertical hill – although in this respect Crunch accounting works like an anti-gravity device transforming that rock into a beachball. And the vertical hill? Well that becomes a bowling alley. And those pins? Well, those are the tax inspectors. Or something like that.
If you think about it, an SME has a lot of responsibilities to juggle; they might have to keep records for Income Tax, VAT, Capital Gains Tax, PAYE and more besides. The £3,000 fine being threatened by HMRC applies to each facet separately, which means you could be hit with multiple fees one on top of the other.
Small business owners are usually responsible for the complete running of their business: sales, marketing, customer relations, production and maybe more. The last thing they need are inspectors snooping around their accounts and nit-picking for excuses to raise revenue for the Exchequer.
What this emphasises is the importance of effective bookkeeping. Online accounting software can be a key tool in this, enabling freelancers, contractors and small business owners to keep all their invoices, expense receipts, and financial data, all in one secure place. Instead of disparate scraps of paper and multiple files, HMRC inspectors can see all your information quickly and easily, saving time for everyone involved.
Here at Crunch, we provide an online bookkeeping solution complete with on-tap accountancy advice and assistance whenever you need it. That way, if the tax officers want to inspect your accounts, you can be rest-assured that everything has been properly looked after.
For more information on HMRC’s ‘Business Records Checks’ access their consultation document by clicking this link.