Victory for business groups as HMRC suspends spot checks on small firms

The decision follows complaints from professional and business bodies who argued that the tax department's "helping hand" approach to paperwork was more of a hindrance.

After reviewing the Business Record Checks pilot programme, HMRC director of local compliance Richard Summersgill acknowledged "the need for a fresh approach".

The results of the review concluded that the project had been badly targeted and damaged HMRC's relationship with accountants and business groups. 

The scheme has had a fraught gestation period, with advisers concerned about the visits turning into fishing trips for tax investigations and the stance of their professional indemnity insurers. To make matters worse, HMRC then embarked on a pilot programme last April without informing professional representatives.

It was also launched amid accusations that HMRC has turned a blind eye to tax owed by large companies.

While senior HMRC figures continue to publicly talk up the merits of helping businesses improve their record-keeping, the scheme was trimmed back from a planned 50,000 to 20,000 visits a year when the full roll-out began in September 2011.

"The strength of feeling against BRC in the agent community cannot be over-stated," the review document noted, adding that many who wanted to improve the relationship between HMRC and the tax profession felt "the way in which BRC were introduced has damaged that relationship".

The main point of contention for the advisers is that inspectors turning up from HMRC to check clients' inadequate record-keeping, they will question the competence of their accountant.

HMRC accepted that if it did pursue the checks as currently designed and start to charge penalties, it would cause reputational damage to the department. 

Chartered Institute of Taxatrion president Anthony Thomas, who has been outspoken about the issue during the past year, welcomed the recommendations as "promising" and praised HMRC for taking a fresh look at the BRC programme.

"Tax advisers are strongly supportive of efforts to improve record keeping by business, but up until now HMRC have been going about it the wrong way, endeavouring to eradicate error by increasing burdens disproportionately," he said.

"A good programme to improve business record keeping will involve HMRC and tax advisers working together to educate business about good practice and support them in improving their systems, as well as warning about the risks of poor record-keeping."