The announcement was made in an email communication to the professional tax institutes on Monday and signalled that the three-year pilot would end almost immediately although those businesses identified within the BRC project would still be contacted, assuming that they had received notification from HMRC about a pending visit.

The BRC scheme has run for three years and was designed to pre-emptively check on businesses which had been identified as failing to comply with basic tax requirements and record keeping.

Due to the difficultly in identifying fully non-compliant businesses, the exercise was only effective in so far as HMRC could identify low-hanging fruit and those who were prepared to improve their record-keeping rather than those purposefully failing to keep records or pay taxes.

The HMRC notification stated that: ‘Most customers with inadequate records who have received follow-up visits have improved their record keeping to an acceptable standard. However, we have found that we were contacting more compliant customers than expected, because it’s proved more difficult than originally anticipated to select those customers who would benefit from a visit.’

HMRC confirmed that the business record checks are being phased out and that best practice from the approach to record checks will be embedded into routine compliance activities.

A HMRC spokesperson told Accountancy: ‘Our approach to supporting business in meeting their obligations changes over time as technology and the way we use data evolves. Business record checks have successfully helped many businesses to improve their record keeping and over time the checks delivered diminishing returns. 

‘HMRC remains committed to helping businesses keep better records, through online learning packages as well as digital tax accounts which mean businesses can easily interface with HMRC using their own accounting software.’

Andrew Gotch, chairman of CIOT’s owner managed business sub-committee, said: ‘This announcement is a victory for common sense. Tax advisers are strongly supportive of efforts to improve record keeping by business but, as HMRC themselves acknowledge, this initiative has not proved a cost-effective way of achieving the desired result.

‘Despite efforts by HMRC to identify businesses at “high risk” of having inadequate records most of those they called on were found to be keeping records to an acceptable standard. The evidence is that records are being kept to an appropriate standard by most small businesses in the UK.

‘We hope this signifies a more realistic approach from HMRC to the perceived problem of small business record keeping. An educative approach, with initiatives such as HMRC’s online learning packages, is a much more sensible way forward in helping businesses keep adequate records to enable them to produce accurate tax returns when these are required. The CIOT and our members are keen to work with HMRC to ensure the quality of educational products is as high as it can be.’

HMRC added that it would continue to build on the lessons learned from the BRC exercise and would work to ‘design a better approach to embed best practice into our routine compliance checks. We will continue to support businesses through our online learning packages and the investment we are making into digital tax accounts which will mean businesses can easily interface with HMRC from their own accounting software’.