HMRC scraps BRCs

Thursday 22 October 2015

HM Revenue and Customs (HMRC) has announced the abolition of Business Record Checks (BRC), as it was having trouble selecting noncompliant businesses to undergo the process. This means that it was difficult for the process to be cost-effective.

BRCs are a compliance measure that HMRC used to check that businesses were keeping adequate records of their income and expenses, so that taxation could be accurately calculated.

However, despite the highest-ever number of BRCs being run in 2014, more than 75 per cent of the companies inspected were found to be in compliance with record-keeping regulations. The practice has been through a number of trials and revamps, so the decision to scrap it altogether is not completely unexpected.

The announcement was made after HMRC consulted with the Chartered Institute of Taxation (CIOT) and a number of other tax bodies to determine the true effectiveness of BRCs in practice.

A Revenue memo on the subject explained: “HMRC has decided to wind down the BRC initiative. BRC has positively encouraged businesses to keep better records”.

“We have found that we were contacting more compliant customers than expected, because it’s proved more difficult than originally anticipated to select those customers who would benefit from a visit.”

Andrew Gotch, chairman of the CIOT’s Owner Managed Business Sub-Committee, welcomed the news and said: “Tax advisers are strongly supportive of efforts to improve record keeping by business but, as HMRC themselves acknowledge, this initiative has not proved a cost-effective way of achieving the desired result.

“Despite efforts by HMRC to identify businesses at ‘high risk’ of having inadequate records most of those they called on were found to be keeping records to an acceptable standard. The evidence is that records are being kept to an appropriate standard by most small businesses in the UK.”

He added that the decision paved the way for a “more realistic approach” to keeping tabs on financial bookkeeping for small to medium-sized enterprises (SMEs) throughout the UK, given that the majority are already complying with HMRC rules on keeping financial records.

Mr Gotch also suggested that more educational resources to help SMEs to proactively learn how to keep good records would be a great help in HMRC’s efforts to ensure compliance, and praised the existing online learning packages.

The move is not believed to constitute a relaxation of bookkeeping requirements for SMEs, although it is unclear what measures, if any, will be brought in to replace the BRCs. One possibility is digital tax accounts, which may require data to be uploaded on a regular basis so that compliance checks can be carried out.

Although no further BRCs are set to be issued, anyone in the process of going through one will still need to complete the process, including the phone questionnaire.

By Victoria McDonnell

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