What Happens when the inspector calls?
HM Revenue & Customs (HMRC) enquiries can be stressful events for all concerned. The Revenue continue to be more and more belligerent when dealing with investigations. More worryingly, Inspectors are also being targeted to produce higher yields during investigations. We cover the process of a typical enquiry and give advice on what you can do to minimise your risk.
HMRC have time limits that they must adhere to when opening an enquiry. These have been currently under review and it is likely that the time limit for enquiry is set to change in the near future.
The current time limits are as follows:
*Quarter days are 31 January, 30 April, 31 July and 31 October.
The Enquiry Process
A typical enquiry process is:
- Opening letter from HMRC
- Provision of information and correspondence between
HMRC and the advisor. - Meeting between HMRC, the taxpayer and adviser.
- Final correspondence
- Negotiation
- Closure notice
Power to obtain documents
HMRC have the statutory right to call for such documents and information as may reasonably be required for the purposes of an enquiry. The Revenue Officer conducting the enquiry must issue a written notice requiring the information. This must then be submitted within the time limit specified in the notice, which must be at least 30 days from the date of the notice. Penalties may be incurred for failing to provide the information specified in the notice. The taxpayer may appeal, within 30 days, against the notice if he considers that the requirement is unreasonable.
Calculation of tax and penalties
Once all enquiry adjustments have been agreed between the Inspector, the taxpayer and their advisor, the Inspector will issue a closure notice setting out the additional tax to be paid. In larger cases the Inspector will invite the taxpayer to make an offer in settlement which must cover unpaid tax, interest and a tax-geared penalty.
The maximum penalty is 100% of the additional tax however HM Revenue & Customs have the power to mitigate these penalties based on different factors i.e. gravity of offence, disclosure and co-operation.
Payment of the tax should be made by an agreed date, however, in some cases the taxpayer can pay the balance in instalments over a short period of time that is agreed in writing. This can only be done in cases of hardship.
Who is at risk?
Under the Self Assessment system enquiries can be raised for a number of reasons i.e. information from a third party, discrepancies on Tax Returns from previous years, change in lifestyle compared to income or just at random as chosen by a computer.
Therefore, everyone is at risk.