Changes to HMRC’s approach to tax enquiries wouldn’t be so bad if they could be guaranteed to be applied consistently and objectively, says Anne Eager, a tax expert at Robert James Partnership and enquiries specialist with the new virtual tax partner service, TAX UK. HMRC says they want to achieve greater consistency across the taxes (income, corporation and VAT), both in terms of penalties and how taxpayers are policed. It’s been on the cards ever since the Inland Revenue was merged with HM Customs and HMRC was born, and for taxpayers, means the powers of the old Inland Revenue have been enhanced to match those of Customs and Excise. HMRC now has enhanced access rights, which means it can inspect a business premises and a taxpayer’s record keeping. They can give a minimum of 24 hours’ notice to the taxpayer – or they can just turn up unannounced, demanding to inspect books and records, provided they have the prior permission of a senior HMRC officer. Declining access to these so-called ‘real time’ visits will result in a penalty – and although HMRC doesn’t have the right to arrive and go through drawers, the timescales mean it’s harder to have an adviser present to ensure they only see what they’re allowed to. The purpose of these ‘real time’ visits is to monitor the general quality of accounting records kept in support of a future return. If records do not comply with minimum, standards, HMRC can issue an assessment to tax on the basis that underpayment is likely because of poor quality accounting records. In virtually every case you will receive at least 24 hours’ notice of an inspection. However, if you are faced with an unannounced visit from the tax man and you’re not able to organise an advisor to quickly appear, be courteous and answer their requests. Ask to see authorisation from a senior officer and maintain control of the situation. Offer them a meeting room, and fetch any information they ask for rather than allowing them to snoop through the accounts file on the office floor. It’s also fair to say a business won’t face unannounced visits unless there’s cause for suspicion, e.g. because details from third parties don’t tie in with what has been reported on the tax return. If you do receive notice of a visit from HMRC or notice of an enquiry and need an adviser, make sure you enlist the help of someone who has enquiry experience and comes recommended. If your accountant doesn’t have the right level of expertise, they probably know of someone who does.
Finally, never ignore an enquiry notice: always make sure you deal with any correspondence quickly to avoid making the situation worse. Remember that with HMRC you are treated with suspicion of being guilty until you can prove you are innocent – it’s a subtle difference to our usual approach to justice but has big ramifications for those in the hot seat.