Q. I have received a notice from H M Revenue & Customs (HMRC) informing me of their intention to carry out a cross tax review of my business records. What can I expect and what rights do I and HMRC have?
A. HMRC will, in most cases, give a minimum seven days notice of a compliance visit by letter or phone call. This will include the name of the officers who will conduct the review. Your accountant should also receive notification of the visit if a valid authority (form 64-8) that an agent acts on your behalf is in place. The notification must also confirm what business records the officer wishes to review. In rare cases an unannounced visit may occur and this requires authorisation by an appropriate officer within HMRC or the independent Tribunal.
Businesses can refuse a visit although this can lead to HMRC issuing formal information notices and a failure to comply could result in penalties ranging from £60 per day to £3000.
In most cases the initial visit does not have to be carried out on your premises and if possible the review should always take place at your accountants office. HMRC may request to see your premises but should be able to explain why they feel it necessary having identified a specific risk that requires verification. If you work from home and HMRC request a visit to the actual premises remember they are only permitted to enter those part of the dwelling that are used for businesses purposes.
HMRC will use the power to inspect business premises to check amongst others stock of raw materials, plant and equipment, observe the types of services being performed, stocks of finished goods and deliveries.
If HMRC do enter your premises it is important to emphasise that the legislation uses the word “inspect”. This does not allow an officer to actively search premises or enter rooms to which they have not been invited.
On the day of the visit the officers must formally identify themselves. The length of the visit will be dependant on the size of business but can be anything from a couple of hours to several days. If the meeting is to be held on your premises it is essential to remember that although HMRC have a right to review the business records as part of the compliance visit it does not give them the power to interview or question you or your employees. If they require any additional information or explanations you should ask the officers to put their request in writing so that you and your accountants may give a considered reply.
Where the visit is to be carried out on your premises make a room available that is not part of the day to day operations of the business if possible. Placing hem in the main office for instance may lead to them seeing or over hearing something that may prove detrimental at a later date.
In the majority of cases HMRC will want to see the primary business records and these include;
1. records of all receipts and expenses in the course of the trade, profession or business, or company activities, and
2. records of the matters in respect of which those receipts and expenditure take place, and
3. records of all sales and purchases made in the course of any trade involving dealing in goods.
4. PAYE Records
5. VAT Records
In addition they may request sight of your personal financial records. In these circumstances the new legisalation states that HMRC can only seek information or documents that are “reasonably required” for the purposes of checking the taxpayers position not merely go on a “fishing expedition”. All such request must also be relevant and proportionate to the identified risk.
Normally a power to inspect does not include a power to remove documentation. HMRC do however have the power to take a copy or make an extract from any document provided to them as part of the visit. There are some documents that are excluded and these include legally privilegeded papers, tax advisors papers giving advice and appeal material. If HMRC do request the removal of original documentation obtain a reciept giving a full description of the documents being removed.
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. The telephone number and address of HMRC will be on the letter received notifying you of the visit.
In addition to the above you have a right to request a postponement of the visit if you have a good reason to do so for example if they are seriously ill.
Once the officer has completed his review he should advise you at the time, or later via letter or phone call, of the areas causing concern if any. HMRC state they will work with your client to “put things right”. This of course includes calculating the additional tax, interest and penalties!
For any further clarification, please call our 24 Hour Advice Service on 0844 892 2772.