Q. I have recently attended a trade conference and one of the speakers discussed what he called HM Revenue & Customs “new powers” and the risks businesses face of enquiries and record inspection visits. What are these new powers and how are these likely to effect small businesses like my own?

A. To many the legislation introduced by Schedule 36 Finance Act 2008 (giving HMRC a wider range of powers to inspect) are still referred to as “the New Powers” even though they have now be in force for some time.

The new powers came about as HMRC wanted to achieve greater consistency across the taxes (income, corporation, PAYE, CIS, capital gains and VAT) on how taxpayers are monitored and to this end Schedule 36 Finance Act 2008 was introduced.

HMRC now has improved access rights which means that they can visit businesses, inspect the premises and its assets and look at the business documents there if it is considered the inspection is reasonably required for the purposes of checking that businesses tax position. Business premises are defined as any premises (or part of premises) that an HMRC officer has reason to believe are used in connection with the carrying out of business.

Premises include any building or structure, any land and any means of transport. Remember that this power does not entitle an HMRC officer to enter premises that is used solely as a dwelling. Business assets are assets that an officer has reason to believe are owned, leased or used in connection with the carrying on of a business by any person. Business documents are documents or copies of documents that relate to the carry on of a business by any person and that form part of the persons statutory records.

The inspection must be carried out at an time agreed with the proprietor of the business with at least seven days notice. The inspection must be carried out or approved by an authorised officer of HMRC and this approval must be presented to the person who is being visited. The visit will normally be notified by telephone and confirmed in writing.

However, if wrong doing is suspected there may be no notice but such an inspection must be carried out or approved by a senior HMRC officer and again the approval to do this must be presented to the person being visited. The purpose of these visits is to check the general quality of accounting records kept in support of returns. If records do not comply with minimum standards, HMRC can issue an assessment to tax on the basis that an underpayment is likely because of poor quality accounting records.

In almost every case there will be at least seven days notice of an inspection. However, if you have an unannounced visit from the tax man and you are not able to contact your accountant for advice, answer their requests. Ask to see the authorisation from a senior HMRC officer and maintain control of the situation. Offer them a meeting room, and fetch any information they ask for rather than allowing them to go through the accounts files.
HMRC does not have the right to arrive and start going through filing cabinets or nor do they have the power to question anyone on the premises. They have to rely on those present volunteering to speak to them so remember that you are only required to produce records not to answer any leading questions.

They are allowed to copy any documents produced or remove documents. If any document is removed ask for a receipt and a copy of the document. If HMRC loses any of the documents you are entitled to compensation.

Refusing HMRC access to these visits will arise in a fixed penalty of £300 and if access continues to be denied there are further penalties of up to £60 for each day of obstruction. Finally remember that the officer carrying out the visit should be considerate and polite at all times and act in accordance with HMRC guidelines.

The visit should be carried out in a professional manner, respecting confidentiality, privacy and should be discreet. It is considered that if this is not the case you should ask the officer to leave and immediately telephone HMRC to complain. This complaint must be backed up in writing with a letter addressed to The Office in Charge at your appropriate Tax Office.

Taxwise is now seeing claims arising from HMRC using the above powers and most interestingly is the fact that 30% of all claims at present are as a result of PAYE/VAT compliance visits. This is a much higher percentage than we have seen in earlier years.

For more advice on this topic please contact the TaxWise Advice Service on 01455 852555.
TaxWise is available to help answer any tax queries. Just call the Advice Service on 01455 852555 and one of our specialists will be happy to help.