Business Economic Notes (BENs) were originally issued to Inspectors of Taxes to assist them in examining accounts. They were intended to provide a general background to the trade, with some explanation of its most important features rather than an exhaustive or definitive picture of any particular trade or profession. They were subsequently updated and re-named Tactical Information Packages (TIPs). Whilst these were withdrawn from HMRC’s website, it is still possible to access the historic BENs for certain trades.
One particular area on which BENs focussed was the Gross Profit Rate (GPR) achieved. Over the years an ostensibly low GPR has been the trigger for numerous tax investigations across a wide range of businesses, the inference being that if the achieved GPR fell short of the industry norm, then in default of any other explanation HMRC would seek to attribute it to an understatement of sales.
Somewhat controversially, HMRC now wish to take their targeting of low GPRs further. For two selected types of business (yet to be announced) they intend to issue warnings with the issue of 2013/14 tax returns that if, on filing the returns, the GPRs fall below the norm the taxpayer will be expected to provide an explanation for the variance. The plain inference is that such under-performing businesses will be targeted for investigation. This pilot is being termed a “test and learn” exercise, but we suspect that it is highly likely that it will be rolled out to all businesses in due course.
It is to be hoped that HMRC’s information on GPR norms is more up to date than the BENs, some of which are approaching 30 years old: but it may be nonetheless advisable to familiarise yourself with the BENs, a link to which can be found here.
If you have any questions surrounding this initiative from HMRC or if upon receipt of HMRC’s letter the GPR of the business does not match HMRC expectations, please contact us for a confidential discussion on the matter.
