Are family businesses a high risk for HMRC?
HMRC has stated that businesses that can demonstrate good management and accounting systems will be viewed as low risk, giving them more time to spend on higher risk businesses.
Family businesses are often regarded by HMRC as a higher risk because of the overlap between business and family.
So what can you do to reduce the risk of an investigation?
- Loans to family members constitute a taxable benefit (and can create a charge on the company) and should be declared.
- Expenses that are not wholly and exclusively for the purposes of the business need to be clearly identified and the tax treatment clarified.
- Entertaining expenditure (other than staff) is not allowable.
- Salaries paid to family must be wholly and exclusively for business purposes.
- Benefits provided for family members must be declared.
- Tax planning is high on HMRC’s agenda and aggressive planning is likely to cause an enquiry. Careful implementation and documentation is crucial.
- Acquisition and sale of business assets should be properly recorded.
- Ownership of assets such as yachts and aircraft often cause problems when these are used by family members.
- Overseas companies which are part of the group, with UK-based decision makers, are likely to face a company residence challenge from HMRC.
HMRC is carrying out a full review of tax systems and processes for companies which it considers to be high risk; especially where there is a history of mis-declaration. Some time spent now to tidy things up could save a lot of problems later.
Date: 16th April, 2008
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