It may not only be your clients who have a problem when HMRC come calling. Below are real examples from clients of 2020 Tax Protection:
New Approach to Large Business
HMRC are taking a very different approach to some larger businesses. To the agent this looks like a very detailed request for information and significantly is voluntary. However, whereas normally it may be considered good practice to supply detailed information only were necessary in this instance there could be a very positive upside to cooperating with HMRC.
These reviews are an attempt to identify the high risk areas in all areas of business and across a number of taxes. HMRC will discuss these concerns and how these risk areas can de made “less risky”. If agreement can be reached the clients are less likely to receive enquiries in future. A word of warning, though, this is a new approach and we need to be careful there is no sting in the tail. Also, this type of review is clearly identified and if you are in any doubt seek written confirmation that this is the type of review being undertaken. Never simply supply information without knowing exactly which statutory authority, if any, is being used.
We previously mentioned the situation where accountants have not been kept in the loop by HMRC as to the full extent of enquiries into the client's tax affairs. A number of cases have arisen this month where they have been informed but have not appreciated exactly what is taking place. This is due to the language being used by HMRC. They are not asking for all books and records underlying a return but they do say they are undertaking a review of the "whole return" and also wish to review the PAYE/VAT records at a visit. Many accountants do not attend PAYE/VAT compliance visits as a rule but would equally never let a client meet HMRC during the course of a full enquiry without being present. Where HMRC state the statutory authority of S9A/S12AC TMA 1970 or para 24 (1) Sch 18 FA 1998 AND mention they are conducting a review of the whole return this is a FULL ENQUIRY and needs to be treated as such.
This episode shows both the need to stress to clients the importance of letting you know of any impending visit and also to see any correspondence issued to the client.
"Accountants and clients need to be aware of the manner in which HMRC may deal with mixed tax compliance checks. Be particularly mindful that they may still call a full enquiry a "compliance check". Make sure you see all correspondence. If you are not, for example the 64-8 agent for VAT you might not be sent a copy of the full enquiry letter being sent to your client for "confidentiality" reasons.
A situation has already been seen where this has happened. The accountant was only told that a compliance check was being undertaken at the business premises to look at company tax and VAT. As he was not the VAT agent they would not say any more. The accountant assumed this was a PAYE and VAT compliance visit and so did not see the need to attend. At the visit the two Inspectors began asking wide ranging questions about the business and the directors personally. They then asked the client to call the accountant and instruct them to have certain records and analysis ready for collection that afternoon. It was only at that point the accountant was made aware that the opening letter to the client had actually launched a full enquiry into the client's company accounts. The visit was far removed from a "routine compliance visit" .
"One of my clients received an enquiry notice into their company accounts. Almost straight away HMRC told me that the accounts were fundamentally flawed and as a result extra tax of £150,000 was due. After an initial amount of panic, a very in depth technical argument followed.
The client relationship became more strained as the client began to wonder whether HMRC was correct. With the support of the Fee Protection insurance to the tune of over £5,000 in fees and some back up technical advice paid for by the insurers, HMRC eventually agreed the accounts as submitted."
"A client rented out over 100 properties and was selected for enquiry. Each property had its own rental agreement and the Inspector asked for each one to be provided together with all of the books and records underlying the business. The Inspector apparently had no idea of the amount of information which was being requested until he received 6 crates in his office. Each property was reviewed and the enquiry lasted almost a year. Fees of over £12,000 were paid by the insurance and there were NO amendments at all once the enquiry was closed down."
2020 Tax Protection have seen a case recently where HMRC carried out a Business Economics Exercise on a client’s business. This was carried out fairly early on in a full enquiry. Accountants need to be aware that such exercises should only be carried out where the records have been broken. They should not be carried out simply because HMRC feels it is common practice for a type of business when under enquiry. If you co operate with an exercise which is not justified at the outset it is very difficult to back away if things go wrong. If HMRC suggests such an exercise make sure they are fully justified in doing so.
We have had a case lately where HMRC has made an appointment to visit the business premises and meet the client and accountant in the course of a full enquiry. The Inspectors have turned up for the meeting early and suggested the client gives them a tour of the premises whilst they wait for the accountant to arrive. During the course of the tour they asked various questions about the business which were noted and formed part of the notes of the meeting. In effect the client was denied professional representation for that part of the meeting.
Whereas it cannot be said to be widespread practice yet by any means there is a lesson here for us. Accountants should ensure that HMRC is told in the event they are early nothing should be asked without the accountant being present. Clients can be told to refuse a tour until their accountant arrives.
It is not uncommon for HMRC Inspectors to request the personal bank statements of sole traders, partners or directors. Those dealing with tax enquiries should, however, make sure they know when HMRC are actually entitled to see these.
A private bank account is one in which no business income is deposited and from which no business expenses are paid. If either of these situations occurr HMRC will argue that they have in effect become part of the business records. (Although it may be possible to argue otherwise in some cases for the vast majority HMRC will be correct.)
Other than in the above situation HMRC are only entitled to see the private bank accounts if they have "broken" the records or made a discovery of some kind. They are certainly not entitled to request these statements at the outset of an enquiry as a matter of course. Such requests should be challenged.
Bear in mind when these are produced clients will be asked to explain all lodgements possibly going back a number of years. Not all entries may be remembered and additions to profits may be sought if explanations cannot be produced. It is surprising how many adjustments are made on this basis. By all means co operate with HMRC but act within the rules set out.
We have seen a number of cases recently where HMRC has asked to visit the business premises as part of a routine compliance check.
Although the accountant has asked for the visit to initially take place at their office HMRC has insisted the visit takes place at the business premises. It is important that in such circumstances accountants ask HMRC why the visit is REASONABLY REQUIRED for it must be reasonably required. If the records can be just as easily checked at the business premises then why shouldn’t they be? It is often more economical to have the visit at the accountants office and unless HMRC do have specific concerns then do not be put off by HMRC asking why they cant go to the business premises? Does the client have anything to hide? This attempt to make accountants feel obliged to have the visit at the business premises can still be rebuffed. After all, it really is just a question of economics and convenience.
We have had a couple of cases lately where HMRC has issued enquiry notices which are out of date. This has been challenged at our instigation and HMRC has backed down. However, it shows the need for accountants to check the very basis upon which HMRC in launching enquiries in all cases. “is the enquiry within the enquiry window?” should be one of the first questions. It is worth remembering it is not just the date of issue of the enquiry letter that is relevant so much as the date of receipt. In one case the letter was dated 5 days before the enquiry window closed but did not arrive until 5 days after. HMRC has now conceded they can not proceed with the enquiry.
