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Legislation Update -
HMRC Information and Inspection Powers HMRC New Powers As of 1 April this year HMRC have new powers for carrying out inspections and information requests. The new powers are contained in Schedule 36 Finance Act 2008. The new powers cover PAYE, VAT, Income Tax, Capital Gains Tax and Corporation Tax and HMRC’s authority to visit business premises to inspect the premises, assets and records and to ask tax payers and third parties for information and documents. The purpose of these powers is to ensure consistent standards and to introduce a more flexible approach. What that actually means is that it makes things easier for HMRC and offer less protection for the taxpayer! HMRC previously had powers to formally request information and documents and the most commonly utilised ones were Section 19A and Section 20 Taxes Management Act 1970. These have now been repealed along with the VAT, National Insurance, PAYE and CIS equivalents. Instead we will now be issued with an ‘Information Notice’. As under the previous rules, HMRC should allow the taxpayer to provide the information or documents voluntarily before seeking to issue an information notice however as they no longer need approval from the Tribunal I imagine we will see many formal requests being made unnecessarily. As with the old Section 20, HMRC can also request information or documents from third parties as long as it is reasonably required to check the taxpayer’s position. Where HMRC issue an information notice on a third party they must have agreement from the taxpayer concerned or approval from the First-tier Tribunal. A copy of the notice must be sent to the taxpayer unless the First-tier Tribunal has determined otherwise and the notice must name the taxpayer concerned unless Tribunal has said otherwise. There is a right of appeal against the information notice except where the notice has already been approved by the First-tier Tribunal or if the request relates to statutory records. Any appeal must be made within 30 days from the date of the notice and be made to the Officer who has issued the notice. Information or documents requested under the notice must be; reasonable, proportionate and relevant to establishing the taxpayer’s position. HMRC cannot require information relating to the conduct of an appeal against HMRC; legally privileged information; information about a person spiritual or medical welfare; or journalistic material. Also HMRC cannot inspect or require auditors or tax advisers to produce documents which ask for, or give advice to, a client about their tax affairs. Powers to inspect business premises are also contained within Schedule 36 of the Finance Act 2008. An authorised officer of HMRC is allowed to enter business premises to inspect the premises, business assets on the premises and business documents kept on the premises providing that the inspection is reasonably required to check the person’s tax position. Powers do not allow an officer to enter or inspect any part of the premises that are used solely as a dwelling. It should also be noted that Schedule 36 does not allow an officer to force entry so a taxpayer is within his rights to refuse entry however there may be penalty implications which I will come to later. An inspection should be carried out with the taxpayers agreement; failing that HMRC can request an inspection at a set time providing that they give the occupier at least 7 days notice which does not have to be in writing, or the inspection is carried out or approved by an authorised officer. It is our view that a taxpayer should contact his adviser as soon as he is notified of an inspection to ensure that he is fully prepared and can have his adviser present. Perhaps of more concern is the issue of unannounced visits. HMRC have the right to make an unannounced visit to business premises however unannounced visits should only be made where HMRC believe there is a strong risk that the taxpayer will remove stock, assets, or move the business premises and must be with the approval of an authorised officer. It should also be noted that there is no right of appeal against an inspection notice and so the only option open to a taxpayer wishing to challenge the reasonableness of HMRC actions is by way of judicial review. As I mentioned above, the officer does not have the right to force entry so a taxpayer can refuse to allow him in but you should be aware that where the inspection has been approved by the First-tier Tribunal, HMRC have the right to levy penalties where they believe the taxpayer deliberately obstructed the officer in the course of an inspection. There is a fixed penalty of £300 and further daily penalties of £60 per day for continuing obstruction. If the taxpayer has been notified of the inspection then he should already have contacted his adviser for advice and be as prepared as he can be for the officer arriving. If however the visit is unannounced the taxpayer will be caught off guard and in a vulnerable position. In this situation it would seem perfectly reasonable for the taxpayer to ask the officer to wait a few minutes while he contacts his adviser but it is possible that HMRC would see this as being obstructive and thus the taxpayer will be faced with penalties; it will very much depend on how reasonable the officer is! In summary it is our view that a taxpayer should notify his adviser as soon as he is informed of an inspection and that he should have that adviser present during the course of the inspection to ensure that HMRC do not exceed their powers. It would also be worth putting together an action plan with your adviser in preparation for any future inspection so that you are fully prepared. The HMRC documentation can be found at http://www.hmrc.gov.uk/manuals/chmanual/attachments/schedule_36.htm
Information Powers
Inspection Powers
Sarah Gordon (nee Thomson) |
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