Wednesday, March 2, 2011

HMRC impact assessment is a disgrace

If you knew the taxman was going to come round to your office to check your business records, how much do you think it would cost you?

The taxman has made up some numbers that it is hard to take seriously. They suggest that the only costs to small businesses will typically be related to the "up to" 4 hours that each 'business record check' will take. HMRC have then placed a value of £11.70 per hour on all the accounts and wages clerks, book-keepers, other financial clerks and sole traders who will be involved in each 4 hour meeting.

These numbers are contained in HMRC's Impact Assessment of Business Records Checks. It was published in December alongside the consultation document on the subject of 'Business record Checks'. The deadline for responses was 28 February which is why the Institute of Chartered Accountants in Scotland (ICAS) view has now been made public.

HMRC's estimate is that each half a day, will cost a business £54. ICAS has re-costed an average visit using “realistic” estimates of business disruption and adviser’s time - coming up with a total of more than £560 per visit.
ICAS' revised estimate of £562 for each HMRC visit is as follows:
  • 1 hour preparatory meeting between the business (£50 per hour) and its accountant (£75 per hour) = £125
  • 3½ hours spent by the business (£50 per hour) and its accountant (£75 per hour) in dealing with HMRC visit = £437
I think this is still woefully short of the real cost to most small businesses. Don't you?

One of the problems with HMRC's impact assessment is that it only reflects estimated figures for the smallest of small businesses and assumes they do not have an accountant. Perhaps this is deliberate and HMRC do not intend to visit businesses that already have someone, like an accountant, to check their business records. If this were the case though the impact assessment should make it clear. It's not an assumption that accountants are making.

I don't check every HMRC impact assessment and missed this one when it was published in December. The last one I looked at related to Mr Darling's plan to reduce the rate of VAT to 15% for 13 months. That too was woefully inaccurate. I blogged about it here.

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