We like to hope that nobody is so terrified of the big bad Revenue that they lie awake at night in fear of them, but those who are pounced upon with a dreaded HMRC Compliance Check may well do. You might find yourself racking your brains trying to think of what you could have missed, what you could have done wrong whilst there is probably nothing at all. The stress of an enquiry can take its toll regardless of how immaculate your accounts are.
So how do you keep the worries at bay when that letter comes through the letterbox?
The biggest problem for many clients when it comes to having a compliance check is their record keeping. Shoeboxes or plastic bags full of receipts are a sure way to get something lost or missed. If your records are currently in this state, buy a file and make some time to organise.
40% of small businesses underpay in tax due to poor record keeping and HMRC do not like businesses with unpaid tax. With their powers to make unannounced compliance checks into your books, it is very important, from day one, to maintain accurate records by keeping a file of receipts, invoices, correspondence etc. and online data to back it up. You can use spreadsheets but we recommend using an online book keeping software which allows you to upload your receipts and maintain an accurate record from the start.
Tax returns including your personal tax returns, company returns and VAT returns are used to tell HMRC your profitability which includes your income. If any of these are incorrect, your tax return will be effected. Being able to make accurate calculations of expenses and income is vital to paying your taxes correctly, and being able to be accurate often comes down to good records.
As well as for getting it right in the first place, should you have made a mistake in any case, penalties often apply to unpaid tax and the amount of such penalties correlates to how much HMRC deem your mistake intentional. With impeccable book keeping you can show HMRC that you made every effort to pay correctly, thus hopefully reducing your penalties.
The benefits go beyond simply ensuring you fare well in a compliance check. 40% of small businesses actually fail due to inaccurate book keeping. Every transaction, in or out, must be recorded to ensure your success. As well as keeping you afloat, keeping good records can show you how your business is doing (especially when using an online book keeping software) throughout the year aiding your financial planning and business plan.
So avoid having HMRC nightmares by keeping accurate records and ultimately being honest, leaving you with the peace of mind that you’ve got everything in order. And don’t forget that HMRC Compliance Checks can sometimes even be pleasant! Yes, I said pleasant. As well as the potential for highlighting mistakes of unpaid tax, they can also highlight mistakes of overpaid tax, which could even get you a tasty rebate.