Inspection Powers

 New tax legislation which comes into force from 1 April 2009 will give HMRC power to undertake ‘compliance checks’ for the purpose of checking a person’s tax position.

These powers effectively allow HMRC to undertake statutorily authorised ‘fishing expeditions‘ on past, present and future liabilities to income tax, corporation tax, capital gains tax, VAT, PAYE, NIC and Construction Industry Scheme liabilities including in relation to extinct companies and deceased persons. 

Previously, these powers extended only to VAT and PAYE taxes.Only 7 days notice (verbally or written) is required in order for HMRC to enter any business premises.  HMRC will inspect the premises, business assets on the premises and business documents on the premises that form part of a person’s statutory records.  

Under certain circumstances, un-notified visits can be taken if HMRC authorises internally, or if the taxpayer agrees.  It is, therefore, feasible that HMRC will turn up unannounced without prior authorisation and attempt to gain access under the premise of “taxpayer agreement”. 

It is, therefore, essential that you and your staff are aware of this so that you do not unwittingly “agree” to an immediate inspection, without representation or adequate time to prepare. 

HMRC are obliged to provide a written notice if the inspection has been pre authorised and is legitimately unannounced.  There is no appeal process available to the tax payer and there are penalties for obstructing an inspecting officer.  Any business documents relating to premises, assets and documents may be removed or copied if HMRC feel it reasonable to do so.  In our view, this is going to give HMRC the power to inspect anything they want.

It is therefore vital that you maintain complete and accurate records in preparation of a possible real time inspection.  Inadequate business records are likely to lead to an enquiry and discovery assessments.

The old ’enquiry window’ is no longer relevant as these compliance checks will now provide HMRC with all the powers they require. 

Records

HMRC have also created a new power to prescribe records by regulations or by a ‘notice’.  This removes potentially very burdensome requirements which have existed in the past.

HMRC’s approach to records is that if records are incomplete, accounts and returns will be wrong.  Although there is often no commercial need for small businesses to maintain records in such depth, the existence of new specified record requirements increases the likelihood of penalties being taken for failure to maintain those records.

This new power means that there is no practical limit on the information  or documents that can be requested and there is no need for there to be an open enquiry.HMRC can specify the time for compliance with the notice and can also specify where it wants to review the information or documentation (e.g. home used partly for work). 

It is essential that you seek professional advice immediately upon HMRC contacting you with a view to carrying out an inspection before providing any further information or allowing HMRC access to the business records. 

RMT can provide advice on all aspects of dealing with HMRC investigations including ‘health checks’ of business records in preparation for an inspection or compliance visit.

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