tax enquiry basics att september 2008...“controversial” “brave new world” “lack of...

Paul LynamLynam Tax

www.lynamtax.co.uk 1

New: Single set of powers for all taxes; Record-keeping requirements; ‘Real time’ inspections for direct taxes; Penalty regime for non-compliance.

More: Documents and more Information can be required; Wider 3rd party powers (to include Information as well as Documents); Extended powers to visit and inspect records in business premises

(including taxpayers’ homes); Shorter notice periods (e.g. 7 days for visits); Weakened “Discovery” protection; Limited appeal rights; Abolition (potentially) of Enquiry window protection; and Changed assessing time limits.


“Controversial” “Brave New World” “Lack of Safeguards” “Broad and ill-defined” “A sea change in the way that HMRC interact with taxpayers and their

advisers” “The new rules contain a lot in the way of HMRC powers and little in the

way of taxpayer safeguards” “Increased powers, legislation capable of extremely wide interpretation and

reduced safeguards”

“A Perfect Storm” (Paul Lynam)


Independent specialist tax consultancy business;

Experts in managing tax enquiries; resolving tax disputes; advising on dealing with HMRC and on any thorny tax issues.

Partners: Paul Lynam: Gemma Lynam ACA FCCA

Initial discussions with clients or advisers: no fee/no obligation basis: 0845 643 9997 [email protected]


Objectives Overview of key aspects Provide a takeaway gloss for future reference

Legislative framework: Finance Act 2008 What is a Compliance Check? “The Devil is in the Detail” Summary Q&A Buffet


New single regime for: Income Tax; Capital Gains Tax; Corporation Tax; VAT; PAYE; Construction Industry Scheme;

From 1st April 2009: Finance Act 2008 applies: Schedule 36 FA08: Information & Inspection Powers and Penalties; Schedule 37 FA08: Record-Keeping requirements; Schedule 39 FA08: Time Limits for assessments and Claims (transitional

arrangements from 1st April 2009 – 1st April 2010); Section 114 FA08 : Access and Inspection of any Computer.

Consequential provisions amend relevant parts of other Acts.

The new powers “may be extended to other taxes in the future”.


S19A TMA 1970: Written information powers for SA enquiries (the power to open an enquiry under S9A TMA 70 is unaffected).

S20 TMA 1970: Written information powers, for direct taxes only. Para 6 of Sch 1A to TMA: Written information power for enquiries into a

claim. Paras 27-29 of Sch 18 FA98: Written information power for CTSA

enquiries. Para 7 of Sch 11 VATA 94: VAT power to look at records and

information power. Reg 97 of SI 2003/2682: The power to look at PAYE records. Reg 26 of Sch 4 SI 2001/1004: The power to look at NIC records. Regs 51 & 52, IT (Construction Industry Scheme) Regs 2005: The

power to look at CIS records.


Para 58 Sch 36 FA08 “ “Checking” includes carrying out an investigation or enquiry of any

kind”.

HMRC say: “A compliance check: can be made into a filed tax return (typically an Enquiry); Or can be made before a tax return has been filed (so called “real time”

inspections); ...is only to be carried out: when a risk has been identified; or as a random

enquiry.”


Record keeping requirements; Information Notices:

General Tribunal pre-approval Un-named 3rd Party Notices Complying Appeals Restrictions and Safeguards

Inspection Powers; Computer records; Penalties for non-compliance; Time limits for assessments and claims.


Sch 37 FA08 amends existing record keeping legislation; Very minor (housekeeping) changes – so far! VAT, IT, CT, CGT: “Generic requirement”: taxable persons must keep

“adequate” business and accounting records. PAYE: specified records employers must keep. HMRC (currently) say “adequate” means sufficient to make the right profit,

loss, tax declaration/ claim. HMRC to publish “non-statutory guidance” on the “generic requirement”:

tailored to business, non-business and particular cases (e.g. CGT).

The kicker: BUT: HMRC are enabled to make future Regulations, creating additional mandatory record keeping requirements.


Schedule 36 FA08 HMRC can issue a written Notice: requiring 1st and 3rd parties to produce

“Information” and “Documents”; that are reasonably required to check a person’s tax position;

1st party Notices (i.e. to the taxpayer): HMRC can get prior approval of the Tribunal; in which case, no right of appeal;

For 3rd party notices: HMRC need either: the prior approval of the taxpayer (notional right to appeal); or the Tribunal (no right to appeal).


The Tribunal are only to approve Notices if Application approved by “Authorised Officer”; satisfied officer is “justified”; subject already informed and given a reasonable opportunity to make

representations of why Notice should not be approved; Tribunal has been given a summary of any representations.

3rd Party Notices: taxpayer must be given a summary of why HMRC requires info and docs. must name taxpayer: unless Tribunal satisfied that the officer has

“reasonable grounds” for believing that naming the taxpayer might “seriously prejudice the assessment or collection of tax”.

Copy of notice must be given to taxpayer unless an Authorised Officer applies on above (serious prejudice ) grounds; to Tribunal’s satisfaction.


Information or Documents; Person or class of persons whose identity is unknown; Tribunal only to approve if:

Info or doc reasonably required by HMRC to check UK tax position; reasonable grounds to believe failure to comply with Taxes Acts/ VAT acts such failure is likely to have led or lead to “serious prejudice to the

assessment or collection of UK tax”.


Within such period, at such time, by such means, in such form, as is reasonably specified;

At: An agreed place; or At a place reasonably specified (not being used exclusively as a dwelling

place); Copies of documents may be supplied – unless originals are specified in

Notice or later.


Appeals to be made In writing;Within 30 days of Notice; To officer issuing Notice; Stating grounds of Appeal.

Suggested Grounds: Not “reasonably required”?Not “Justified”?Not “Relevant” to “tax position”? “Unduly onerous” – [unnamed taxpayer notice (only?)]Not proportionate? - [HRA]

Tribunal may: confirm, vary, set aside. Tribunal may: set time limit to comply.

No appeal from Tribunal! (ECHR? Judicial Review?)


Very few meaningful restrictions but HMRC cannot require: Information relating to the conduct of appeals against HMRC

decisions;Legally privileged items [probably Lawyers only] “Journalistic Material” or “Personal records” [same as PACE

protection];Documents not in the subject’s possession or power [Duh!]; Info. or Doc’s relating to a period where an IT /CTSA has been

filed, unless HMRC have issued a valid Enquiry Notice. Except: HMRC “has reason to suspect” an underassessment etc, or records also required to check VAT or PAYE position [i.e. No Discovery required, No Enquiry window restriction!]

Tax Advisers’ “relevant communications” and “auditors papers”: Unless those papers contain information about a document the taxpayer sent to HMRC!


Time constraints: No Notice can be issued in respect of:

Information over 6 years old, or Documents the whole of which originated over 6 years before Notice, unless an Authorised Officer approves;

A person’s tax position more than four years after their death!

Safeguard: Codes of Practice HMRC promise Codes of Practice and guidance to ensure:

HMRC's powers are used reasonably and proportionately. Taxpayers are clear about when a Compliance Check begins and

ends.


An HMRC officer may enter “business premises” and inspect the “business assets”, “statutory records” and the premises (but not any part used “solely” as a dwelling) [HMRC website “They can, however, enter if invited.”]

No right to force entry or to search

Inspections may only be carried out where it is “reasonably required to establish the tax position”: At a time agreed with the occupier; or At any reasonable time:

• If the occupier has been given 7 days notice (including verbally); or• With the approval of an Authorised Officer (e.g. Unannounced Visits).

Powers can be exercised before a return is made.

There is no right of appeal against an Inspection Notice, but the occupier can refuse entry. [Unless Tribunal pre-approval].

A Notice may simply “be left in a prominent place on the premises”.


HMRC can get pre-approval from the Tribunal: if an “Authorised Officer” approves and the Tribunal is satisfied the Inspection is “justified”. NB: Notice must state that it has Tribunal approval.

If a visit has been pre-approved the occupier can be penalised for obstruction (but visit must still be at a reasonable time).

Any Document produced to or inspected by HMRC may be copied; or removed by them at a reasonable time and for a reasonable period.

No automatic right of re-entry.

An officer may enter any premises they believe are to be used in connection with taxable supplies of goods or taxable acquisition of goods from Member States, and such goods are on the premises.


A “Document” is anything in which information of any description is recorded, and a copy of a document means anything on which information in the document has been copied; by whatever means;

A “relevant document” is one that has been, or may be, subject to an Information or Inspection Notice;

An HMRC officer authorised for this purpose may, at any reasonable time, obtain access to, and inspect and check the operation of, any computer and any associated apparatus or material which is or has been used in connection with a relevant document.

An “Authorised Person” (i.e. HMRC officer) may require the person on whose behalf the computer is or has been so used, or any person concerned with the operation of, the computer etc, to provide reasonable assistance, as may be required for the Inspection;

Any person who obstructs or fails to comply within a reasonable time is liable to a penalty of £300.


A penalty may be charged where a person:

Fails to keep appropriate records;

Fails to comply with an Information Notice [HMRC may allow an extension];

Conceals, destroys or disposes of documents subject to, or where HMRC have said they are likely to be subject to, an Information Notice;

Deliberately obstructs an inspection that has been approved by the First-tier Tribunal.


There are three types and amounts of penalty:1. Initial “standard” penalty of £300;2. Further “daily default” penalty of up to £60 for every day that the failure or

obstruction continues after the date the standard penalty is imposed;3. Further tax-related penalty.

Daily or tax-related penalties cannot be considered unless a standard penalty, in respect of the failure or obstruction, has been imposed;

Daily penalties must only be applied with the agreement of an Authorised Officer.

Appeals to Tribunal Against Standard or Daily Penalties: in writing to Officer, against the penalty

or the quantum, within 30 days of notification, stating grounds; Tribunal may confirm, cancel or vary penalty.


Tax related Penalties If failure or obstruction continues and HMRC believe as a result tax paid is

“significantly less” than it otherwise would have been, they can apply to the Upper Tribunal for additional “tax related” penalties.

Tribunal to have regard to tax “likely” to have been underpaid. Payable within 30 days.

Criminal sanctions On summary conviction: fine up to maximum penalty (but no penalties); On conviction on indictment: Max 2 years imprisonment and/or fine (but no

penalties).


A person is not liable to a penalty if they have a “reasonable excuse” for: failing to comply with an information notice; obstructing an inspection;

and they remedy that as soon as the excuse ends.


Alignment of time limits for HMRC assessment and taxpayer claims;

Assessment rules are based on taxpayer behaviour.

The basic rules are: Four years: normal time limit; Six years: “Careless Error” (except for VAT which is 4 years); 20 years: “Deliberate Error”; failure to register for VAT; failure to

notify chargeability to tax; failure to notify tax avoidance schemes.

Time limit for taxpayer claims: four years.

The new time limits apply from the end of the accounting period or tax year.


New Record-keeping requirements and HMRC right to set more Record-keeping requirements;

New Information and Inspection Powers; Penalties for non-compliance; Fewer, weaker, safeguards; New Time limits for assessments and claims; New penalty regime for tax geared penalties, with new offences; New 1st and 2nd tier Tribunals, with strict time limits; Draft Taxpayers’ charter: HMRC saying: “we will pursue relentlessly those

that break or bend the rules”! With HMRC enabled with such a broad sweep of powers the need for

advisers to understand the legislation and to be vigilant in upholding the few safeguards has never been greater.


Any Questions/ Contributions?


Independent specialist tax consultancy business

Experts in managing tax enquiries; resolving tax disputes; advising on dealing with HMRC and on any thorny tax issues.

Partners: Paul Lynam: Gemma Lynam ACA FCCA

Initial discussions with clients or advisers: no fee/no obligation basis: 0845 643 9997 [email protected]
