No company likes to hear that their office is to be inspected by HM Revenue & Customs. And under recently published laws - the Finance Bill 2008 - it could soon be possible for the taxman to visit home offices. What could that mean for small business owners?
Due to come into effect in April 2009, the new laws will mean that tax inspectors can visit a home if part of the residence is being used for business purposes. This is likely to impact the thousands of people who now remotely work or run their small business from, say, their back bedroom. But don't worry, the taxman isn't about to burst into your living room whilE you've got your feet up, with a cup of tea and are watching an episode of Corrie, far from it.
HMRC will still only be able to run an inspection at home-based offices if they think that it's "reasonably required". But some people are concerned about one point that's expected to come into force with the bill: that the home-business owner will no longer be able to object to the visit, even though they may only be given 24 hours' notice.
Refusing to let a tax inspector into your business premises can result in a fine. So there's only one thing for it. You must make sure that your accounts are up to date at all times and ready in case anyone comes knocking.
Keeping financial records current and accurate is essential for the daily operations of any business. But if you're receiving a visit from tax inspectors it's important that you know exactly where your finances are at. You don't want to be in a cringeworthy position of not being able to answer tricky questions about specific transactions.
There's no doubt that tax inspections can be a stressful process and can often leave people exasperated, wondering: "why us?"
The reasons your business might be chosen for an inspection are numerous and wide-ranging. You could simply have been picked out of the revenue inspector's hat: a small percentage of businesses are randomly investigated each year. In fact, in a tax office area it isn't unheard of for businesses to be randomly picked more than once, even if that's tedious for the enterprise.
It's more probable that there's a real reason for the inspection though. Has your company ever submitted tax forms late or with errors? Has HMRC pointed out that there've been mistakes in documents submitted in the past? Do you have any competitors that might feel the need to tip-off the tax office to investigate you (it's been known to happen)?
Whatever the reason, one thing's certain, you need to make sure that you've successfully crossed your t's and dotted your i's in every area of your financial accounting before the visit takes place.
Before the taxman cometh, try to get professional help in to make sure that everything is ship-shape. Once at your premises, an inspector will want to know everything about your operations as well as viewing your records. You will need to produce original documents such as invoices, receipts and bank statements. But you should also be keeping a detailed record of calculations made when filling out tax returns.
A great way to ensure that you do this is to use an accounting software package. For example, Solar Accounts has a handy "VAT return detail" report, which clearly details how each transaction affects each line on the VAT return; it really couldn't be easier.
The inspectors will aim to give you advice and help during their visit. This will later be backed up with written documentation. But, if you want to save yourself time and money, ensure that there are no faults to be found in the first place.
Using accounting software will mean that your records are consistently kept up to date. So in the event of a visit from the taxman, you will feel confident and calm, safe in the knowledge that all is as it should be.
Mark McLaren is managing director at Solar Accounts. For more information visit www.solaraccounts.co.uk
