It’s come to our attention that HMRC’s task force is particularly active at the moment. If you receive an enquiry letter, notice of a visit, or an unannounced visit, what can you expect and how should you deal with it?
We take some time to look at the implications and give some practical advice should you be in this situation.
A Visit from the Tax Inspectors
There have been numerous reports recently of teams of HMRC officers arriving unannounced and serving inspection notices on confused and bewildered business owners.
In the middle of a working day (or working night in some cases) when a letter or enquiry or notice of inspection is being handed over directly by an HMRC officer without warning it’s easy for a business owner to be taken completely off guard, and be confused by the entire situation. This is also exacerbated by the officer expecting answers to questions there and then.
It is becoming more common, and many business owners are unsure what alternative action is available, other than to comply, and do whatever is asked of them.
As accountants for many Stockport small businesses, this represents a considerable concern for our clients. More often than not, we find out what has happened after the event has taken place, and sometimes after the client has already provided documentation and explanations to the pre-scripted ‘Business Review Aide Memoire’ that is used by the lead officer.
The result can be that the business owner answers questions wrong and ends up with a lengthy and time consuming issue to deal with.
Receiving a Notice of Inspection
The information powers contained within Schedule 36 FA 2008 and paragraph 10 state that:-
“An officer of Revenue and Customs may enter a person’s business premises and inspect:
- the premises;
- business assets that are on the premises; and
- business documents that are on the premises,
if the inspection is reasonably required for the purpose of checking that person’s tax position.”
This means that officers do have the right to enter your building, but a notice of inspection does need to be served by an officer drawn from the HMRC Taskforces and Specialist Compliance Unit.
These inspections can only take two forms – announced or unannounced.
1. Announced Inspections
These are typically arranged in agreement with the business owner. Details of the visit are confirmed in writing and issued with factsheet CC/FS3. If there is no agreement, HMRC must give at least seven days’ notice of the inspection. In addition to this, a fact sheet should be sent along with the notice of inspection.
2. Unannounced Inspections
These can only be carried out with the agreement of an authorised HMRC officer or the prior approval of a tax tribunal. The written notice will normally stipulate the date and time of the visit, along with the inspecting officers’ names. This will also be accompanied by factsheet CC/FS4.
What will HMRC do when they arrive?
The visiting team will most likely include HMRC officers from the Systems Evasion and Audit Team (SEAT). They will want to download information from your businesses computer. Data is generally downloaded onto a new USB stick and then copied onto the laptop of one of the SEAT officers. Serial numbers are also taken from the Merchant Acquirer Terminal used by the business.
Business Review Aide Memoire
In addition to this, the lead officer will often want to complete The Business Review Aide Memoire with the business owner during this visit. This comprises an interview brief that guides the HMRC officers through the questions they should ask and information they should seek. It is broken down into the following;-
1. Case Details
These include the date and time of the visit and the names of the HMRC officers present.
2. Business Information
Incorporating details of any associated businesses and website address.
3. Business Background
This is the request for information on any subsidiary activities, any non-trading premises such as warehouses and record keeping processes.
4. Other income, stock and assets
This involves the regularity and recording of stock checks, business vehicles and the use of any external contractors.
This is the most controversial section, comprising other sources of income, personal bank accounts, private assets and details of regular private expenditure.
As this section focusses on personal lifestyle questions. It seems to many commentators to be in contradiction to Schedule 36 FA 2008 and paragraph 10, as stated above. However, HMRC are continuing to use it at present.
The issue many accountants have with the Business Review Aide Memoire, is that if it is an Unannounced Inspection, the business owner can end up answering questions without consulting their accountant. As you can imagine, this can lead to some serious issues when answers are wrong or inaccurately expressed.
What should you do when they arrive?
Any visit from inspectors can be traumatic and worrisome, no matter whether you know you are in the clear or not. But this is especially the case when HMRC initiate an unannounced visit, or one outside normal working hours.
When this occurs, such as in a restaurant or late night convenience store, contacting your accountant isn’t immediately an option. However, there are some simple things you can do to make sure you are fully covered and not forced unaware into a situation that could be difficult.
1. Don’t Panic
Sound advice for any situation, but the first thing to do is to ask why the visit is required and why it has been necessary on an unannounced basis. HMRC are required to tell you the reason for their visit.
2. Check the details
Read the notice of inspection carefully and don’t be rushed. Also check the identity cards of the visiting officers against the names shown on the notice of inspection. It is also important to establish their discipline i.e. are they Tax, VAT, or PAYE.
3. Look for Tax Tribunal Involvement
Reading the Notice of Inspection, you should be able to establish whether it has been issued by a tax tribunal. If it has, then extra extra caution is required, as serious penalties can be levied for not complying with the tribunal.
4. Let them in … or not
Having read through the documentation, it is your decision whether to allow the officers entry onto the business premises or not. If it is not convenient, for legitimate reasons, you can decline. Such legitimate reasons, might be, for example, because the premises are busy with customers, or if you, the business owner, has another urgent appointment such as collecting young children from a childminder, or if the business records are held elsewhere. Although you can refuse entry on such grounds, it is advisable to offer an alternative date, time and venue for the inspection.
5. Get copies of all documentation
If you allow the visit does go ahead, make sure that any information or documents given to or taken by HMRC are purely business related. In addition, ask for a copy of the completed Business Review Aide Memoire.
Dealing with the HMRC Task Force
The HMRC taskforce is active at the moment and worryingly, the number of unannounced visits is increasing. Certain sectors are more likely to attract attention, such as hotels, restaurants etc. But any business can be subject to investigation.
Our worry is that initially the task forces were publicised as targeting sectors at a higher risk of tax fraud, but now they and the increasing number of Unannounced Inspections seems to be being used as a way of getting access to the client and their business records before the accountant can intervene.
It also seems that they are being used in inappropriate cases to shock and awe clients into submission. This particularly seems to be the case with the Aide Memoire, where visiting officers are using the 129 questions in an attempt to gain a full interview on site, before the business’s accountant is even aware of the visit.
Get the right help
As we have said earlier, It is very difficult to later unsay something that has already been said, which is why we recommend following our tips above and seeking immediate assistance should a Notice of Inspection be received.
At Steven Glicher and Co Accountants, we can work alongside you to make sure you don’t fall foul of the current HMRC tactics. For further information contact us today.