SMALL businesses are being unfairly "harassed and mistreated" by the tax authorities, it has been claimed.

The Forum of Private Business (FPB) made the allegations in a letter to David Gauke, Exchequer Secretary to the Treasury, to complain about the business record checks process brought in by Revenue and Customs (HMRC).

Colin Borland, head of public affairs at the Federation of Small Businesses in Scotland, also believes HMRC needs to change its approach.

He said: "When companies are fighting hard for every penny they don't want these type of investigations hanging over them particularly as they may have done nothing wrong.

"HMRC should be helping businesses better understand and comply with the regulations not trying to catch them out.

"We need to get away from this idea of them and us which seems to have developed."

The letter written by the FPB is understood to call for a simplification of the tax regime and greater flexibility when dealing with SMEs.

The organisations says its members are being harshly targeted in the record checks initiative while larger firms are not being placed under as much scrutiny.

The process can involve spot checks on several years of information including accounts, invoices, bank statements, receipts and cheque stubs.

Any businesses found to have poor records can be fined up to £3000.

Phil Orford, chief executive of the FPB, said: "Small businesses want to keep proper records but struggle with the significant administrative barriers that exist in the UK.

"They also want to pay their tax bills on time but the reality is that many firms are struggling with cash flow in extremely tough economic conditions – yet HMRC is being completely inflexible.

"Entrepreneurs are crying out for a better tax regime that supports their ambitions and is conducive to growth, not one that provides constant hurdles to overcome and punishes them disproportionately."

HMRC launched a pilot of the business record checks system in April last year before expanding it in September.

Of the businesses visited in the first three months 44% were found to have issues with record keeping and 12% were suffering "serious inadequacies".

A decision on whether or not the scheme will continue has not yet been made although an announcement is expected early this year.

It is estimated around 12,000 companies will have been visited by the end of the current financial year in March.

A spokeswoman for HMRC said: "We announced last year that we would review the Business Record Checks (BRC) project during 2012.

"Working in close consultation with key tax and business stakeholders we will look carefully at the overall aims and purpose of the BRC to improve our approach to the problem of poor business record keeping.

"Poor quality record keeping costs the UK around £6 billion a year and this has to be addressed, but we recognise that our approach needs to be more collaborative and supportive."

At the end of last year HMRC announced a crackdown on under-payment of VAT with Scottish businesses in the food sector among those targeted.

The number of petitions the agency has filed for bankruptcy in Scotland has nearly doubled during the past three years with winding up orders increasing 75%.

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