News

HM Revenue & Customs (HMRC) have been given more powers to carry out compliance checks (that is checks to make sure we are all paying the correct amount of tax).  Many of the powers were already in existence for VAT and thus they have been aligned for more taxes.

The following questions and answers provide a basic guide to the topic, however if you would like more detailed information or advice on how HMRCs new compliance check powers may affect you please speak to your usual Hazlewoods contact or e-mail tax@hazlewoods.co.uk

When does it apply?
The new powers apply from 1 April 2009.
Any information requests or inspection activity carried out on or after 1 April 2009 will be made using the new powers. It is generally expected that any access to business records required for an ongoing enquiry will already have taken place under the old rules. HMRC have advised that they will not seek information or documents which they required before the new rules came into effect but that they could not get under the old rules. 

To what taxes does it apply?
The new powers only apply to Corporation Tax, Capital Gains Tax, Income Tax, PAYE, Construction Industry Scheme and VAT.

How do HMRC decide to start a compliance check?
Cases will continue to be selected on both a risk basis and via random enquiries.

Does a return have to be submitted before checks are made?
No, under the new powers information can be requested in-year.

How do I know what records to keep?
Essentially HMRC give taxpayers the flexibility to keep what they know is needed to complete an accurate return. There are some situations in VAT and PAYE where specific records are required and these are set out in regulations.

Should I comply if HMRC ask for things informally?
It is a difficult decision because some issues can be dealt with quickly by being addressed informally and save you money, but by co-operating informally you also forego some of the rights allowed to you under a formal compliance check. We recommend you seek professional advice before making a decision.

Is there a right of appeal against an information notice?
There is a right of appeal against an information notice but not against any requirement to produce statutory records. There is no right of appeal if the Independent Tax Tribunal has approved the issue of a notice.

Has anything changed on legal professional privilege?
No

What are the penalties for not providing the information requested?
The standard penalty is £300 and the maximum penalty for continuing failure is £60 per day.

What is the new unlimited tax-related penalty?
In some cases, normal penalties for not providing information are ineffective. In these circumstances there will be a new deterrent - a penalty related to the likely amount of the improper tax advantage gained by not providing the required information. This type of penalty can only be imposed by the Upper Tribunal, which is equivalent to the High Court.

How much notice will be given of a visit?
At least seven days (unless you agree an earlier date) but in most cases a period of three or four weeks is more likely so that a convenient time can be found.

When can HMRC officers make an unannounced visit?
Where the risk merits an unannounced visit this can be done, although the visit must be authorised by an authorised officer or the First-Tier Tribunal.

What is an officer entitled to do at a visit?
An officer can enter business premises and examine statutory records, inspect the premises and business assets. They cannot search, rummage or wander around unaccompanied without the taxpayer's consent. They can only look at documents beyond the statutory records if the taxpayer agrees or they are produced in response to an information notice.

Can I appeal against the power to inspect?
No. But the law says that an inspection must be reasonable and HMRC guidance includes examples where an inspection would or would not be reasonable. If HMRC breach this guidance, the taxpayer could either make a formal complaint, or could refuse to allow the inspection to take place. A penalty for obstructing an inspection can only be charged where the First-Tier Tribunal has approved the inspection. HMRC must demonstrate to the Tribunal the inspection is reasonable before approval is given.

Can HMRC still visit homes?
HMRC will not be able to visit homes that are not used for business purposes without the taxpayer's consent except in criminal investigation cases. HMRC can only visit homes used for business purposes if there is a clear reason why this is necessary.

What will the new time limits be?
Subject to transitional rules the new assessing time limits are:
Tax Ordinary time limit Tax lost due to careless behaviour Tax lost due to deliberate behaviour
VAT 4 Years 4 Years 20 Years
Income Tax and Capital Gains Tax  4 Years 6 Years 20 Years
Corporation Tax 4 Years 6 Years 20 Years