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The Risk-Based Approach – Risky business for SMEs? – Part I

February 18, 2014 7:00 am / Leave a comment

HMRC

HMRC (Photo credit: Images_of_Money)

The issue:

Risk-based approaches to manage Compliance Service delivery are undergoing a maturity model evolution.

This per se is not a negative issue, however, do risk-based approaches leave us exposed to more or less compliance risk?

We pose this question because a number of process advances, including technological drivers have over the past few years increased the incidence of the risk-based approach (r)evolution.

As an example, HMRC launched their risk based approach pilot scheme related to business record keeping called ‘Business Records Check‘ a few years ago (2011), only for the initiative to ‘go quiet’ and then suddenly to rear its head again late in 2013.

The facts:

From the HMRC web site, the following information was published:

“Up until 17 February 2012, 3,431 BRC had been carried out. These found that 36 per cent of businesses had some issue with their record-keeping of which 10 per cent had issues serious enough to warrant a follow up visit.“

By extrapolation, HMRC also publish within their background report the following table:

HMRC BRC Checks

It is clear that HMRC, via their risk-based approach, will target SME businesses they perceive as ‘at risk of keeping inadequate records‘, because of the additional tax yield they estimate to collect over the next few years.

The HMRC site goes on to state:

“A new approach to BRC started on 1 November 2012. Customers who are more likely to be at risk of having inadequate records will be contacted by letter to arrange for HMRC to call them to go through a short questionnaire.”

All this activity is part of an attempt by HMRC to close the ‘Tax Gap‘.

Next steps:

If you feel that your business records might not be up to the standard HMRC would acknowledge as adequate or if you feel potentially at risk, please contact one of the CIMA team members to assist you in evaluating your records, systems and processes for keeping adequate business records.

In a future article we will look into which specific activities put you or your business at a higher risk of a Business Records Check audit from HMRC.

©2014 – 3resource

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