HMRC COMPLIANCE CHECKS

Every year, HMRC checks thousands of individual, partnership and corporate tax returns to ensure that the correct amount of tax is being paid and that the correct level of allowances and reliefs are being claimed.

Before HMRC can make any enquiries, it must send you, your partnership or the directors of the corporate a written notice of enquiry.  HMRC calls this “opening an enquiry”. At the same time, HMRC will also request documents and information relevant to the entries on the tax return in question, to either check the identified risks or to understand the figures. These requests must be relevant to the entries on the tax return and the point(s) which HMRC are querying.

Normally, you are given 30 days to provide the paperwork and we would strongly suggest that you or your client contacts a specialist to ensure that you do not give HMRC information they are not statutorily entitled to. By doing so, you could potentially open yourself/the partnership or corporate up to further, often unnecessary, scrutiny which could give rise to further questions or checks.

Failure to provide adequate information within the 30 days could give rise to penalties or, worse still, prosecution [insert link to criminal page]. It is therefore important to ensure a timely and well-considered response. We can help ensure that you comply with HMRC’s requirements whilst protecting your best interests.

Normally, HMRC can only make one enquiry into a tax return.  However, if the return is amended for any reason then HMRC can also enquire about the amendment. If HMRC enquires into a partnership or corporate tax return and then wants to ask an associated individual taxpayer (be that a Director, shareholder, member or trustee) questions about their personal tax position, they must open a separate enquiry.

As with the opening of any tax enquiry, there are strict time limits in place for doing so and it is important to speak to a specialist to ensure that any enquiry notice you may have received is genuine and valid before proceeding.

Compliance checks often cover multiple taxes, in which case specialist HMRC staff will work together to review, for example, any VAT or PAYE responsibilities.

What do HMRC do with a compliance check?

As part of a compliance check investigation, HMRC can use its powers to visit your premises, either on a pre-arranged or an unannounced basis (where they think that giving prior warning may affect what information is made available to them) in order to inspect the premises, assets and financial records. If you work from or have an office at home, this can include your personal property.

They may also issue you or your client with an ‘Information Notice’. If you receive an HMRC information notice you are legally required to provide the documents/information requested therein, otherwise penalties will apply.

However, there are opportunities to extend the time limits and/or amend the wording of the notice if you have a reasonable excuse for not complying, provided you inform HMRC as quickly as possible.  If you think that you or your client may have a reasonable excuse why you cannot comply, or you believe that the request made is unreasonable or irrelevant then please do get in touch as HMRC’s acceptable parameters are slim and specialist advice can be invaluable.

What should you do if you receive notice of a Compliance Check tax investigation?

HMRC carries out relatively few truly random enquiries – preferring to target perceived ‘risks’ in that person or entity’s tax position. If HMRC have contacted you or your client, it is therefore likely that they have a specific area in mind which they would like to know more about.

Getting a specialist involved from the outset can help identify and facilitate the narrowing-down of HMRC’s scope to ensure that the matter is resolved as promptly and as efficiently as possible, allowing the taxpayer to continue with their normal life.

If HMRC commences a compliance check into your personal or business tax/VAT affairs then you should consider the following points:

  • Do you feel uncomfortable dealing with HMRC on your own?  Or, as an adviser, do you feel like you need specialist assistance?
  • Do you feel like your knowledge of HMRC’s latest powers is not up-to-date?
  • Do HMRC’s approach or any requests for information or documents seem unreasonable?
  • Are you concerned that a straightforward compliance check investigation is now escalating out of control?
  • Do you feel like you are unable to properly manage and control HMRC?
  • Are there any errors in your tax/VAT affairs? If so, these issues need to be carefully disclosed so as to best mitigate any potential penalties
  • Do you want to avoid your details being published as a deliberate tax defaulter on HMRC’s website (Naming & Shaming’ Deliberate Tax Defaulters, whereby your name, address and details of the tax irregularity are published and can be searched online)?
  • Do you qualify for one of the HMRC Campaigns to encourage the disclosure of tax/VAT errors such that beneficial penalty arrangements can be secured?

If the answer to any of the above is “yes” or “I don’t know” then get in touch and we can help.

HOW CAN LANCASTER KNOX HELP?

At Lancaster Knox our Tax Investigation specialists are industry recognised and dealt with hundreds of compliance checks by the UK authorities over the years.  We are adept at managing interactions with HMRC to ensure that the process runs smoothly and that the client’s interests are best protected.

We also appreciate that, often, this is likely to be the first potentially contentious interaction that the client has ever had with HMRC and that this can be a nerve-wracking experience.

Lancaster Knox will work with you and, where relevant, your current adviser to ensure that HMRC do not seek to obtain information they are not entitled to, that the process is as unobtrusive as possible and give you peace of mind that any historical tax inaccuracies are resolved as soon as possible.