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Business Services  •  Business Tax  •  Enquiries  •  Personal tax  •  Small Business  •  small business record checks

Is your house in order? Business record keeping spot checks start

By RJP LLP on 16 May, 2011

For some time, HMRC has been warning small business owners about the impending launch of a sustained programme of record checks.  This forms part of their live books and records review which will focus on how well the business undertakes its record keeping responsibilities.

It’s now full steam ahead with this initiative to improve record keeping and HMRC have just issued the first batch of letters to 1,000 businesses advising that they want to carry out an inspection visit.  Their intention is to visit 50,000 small businesses each year for the next 4 years.

HMRC are quoted as saying that 40% of small and medium sized businesses are keeping inadequate accounting records which is resulting in the incorrect amount of tax being paid. As a result of this scheme they are expecting to collect an additional £600m in penalty charges alone.

Key do’s and don’ts for good record keeping

-       Don’t throw away any receipts or back up paperwork.  Financial records and evidence of expenses need to be kept for 6 years.

-       Records need to be exact and not estimates of costs.  If you have to make an estimate, producing some back up evidence is advisable.

-       Invoices, bank statements, paying in books, cheque books/stubs, receipts for purchases, expenses forms all need to be filed and kept.

-       Ensure you and all your employees keep clear records showing whenever personal assets are used for business purposes, such as cars for example.

-       Don’t think you are too busy to focus on good administration and paperwork.  Make a point of staying up to date with record keeping.  This makes it easier to be accurate and will also indicate to HMRC that you understand the importance of keeping accurate accounts.

-       Do speak to your accountant if you any queries and listen to any feedback they give you as its better to take some time out now to get things right than suffer the consequences (and costs) in the event of a visit or an enquiry.

HMRC offers specific advice about record keeping for different types of businesses on their website which is well worth a look. Not only does it provide practical advice it is also a guide to what HMRC will expect to see if they do visit. There are also some very practical and useful guidelines on the Business Link website which have been put together in conjunction with HMRC.

Detailed advice about small business record keeping

If, following an inspection, your business is found to have kept inadequate records, HMRC will make an assumption that it is likely the business is not paying right rate of tax.  At this point, they will either launch a full enquiry or assess an additional amount of tax due. In addition, there will be a penalty charged for not maintaining adequate books and records.

As with any approach from HMRC your first step must be to talk to your accountant as help in managing the visit and any follow up needed will make your life a lot easier. If you use someone experienced in dealing with these issues, from the outset, they won’t just take away the stress, they can save you money. The very worst thing you can do is bury your head in the sand and hope it will go away…..because it won’t!

Currently HMRC have a number of enquiry initiatives and options when it comes to investigating taxpayers and their affairs. Each case needs to be viewed differently though and is best discussed openly with an accountant experienced in handling HMRC enquiries.

To discuss record keeping and any concerns about a possible enquiry in more detail, contact Anne Eager on

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