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 officeholder(s) 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 and 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 entitled to. By doing so, you could potentially open yourself/the partnership or corporate up to further, often unnecessary, scrutiny which usually gives rise to further questions and  checks, which increases costs.

Failure to provide adequate information within the 30 days could give rise to penalties or more aggressive action. 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 by focusing HMRC’s attention and narrowing their scope.

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, if they are able to.

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, 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 records are 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 for the failure to do so.

However, there are opportunities to extend the deadline 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 as to why you cannot comply, or you believe that the request made is unreasonable or irrelevant, then please do get in touch. HMRC’s acceptable parameters are narrow and specialist advice can be invaluable.

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

HMRC rarely carries out random enquiries – preferring to target perceived ‘risks’ in that person’s or entity’s tax position. Instead, if HMRC have contacted you, or your client, it is therefore likely that they have a specific risk 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. This will 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 your client could use specialist assistance?
  • Do you feel like your knowledge of HMRC’s latest powers and approach is not up-to-date?
  • Do HMRC’s approach or any requests for information or documents seem unreasonable and/or onerous?
  • Are you concerned that a straightforward compliance check is escalating out of control and developing into an in-depth and intrusive investigation?
  • Do you feel like you are unable to properly manage and control HMRC, therefore the enquiry scope is widening?
  • Are there any errors in your tax/VAT affairs? If so, these issues need to be managed and 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 ( whereby your name, address and details of the tax irregularity quantum are published and can be searched online)?
  • Do you qualify for one of HMRC’s Campaigns, designed to encourage the disclosure of tax/VAT errors such that beneficial penalty arrangements can be secured early on?

If the answer to any of the above is “yes” or “I don’t know” get in touch as soon as possible 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.