But according to Mike Eland, HMRC’s Director General Enforcement and Compliance, “Only those who choose to break the rules or deliberately evade the tax they should be paying will be targeted. Honest businesses have absolutely nothing to worry about.”
Can Mr Eland be taken for his word? Should business owners be worried? While the Revenue does have the power to visit unannounced, this power is very rarely used and HMRC doesn’t want to abuse it. Nevertheless, HMRC inspectors are on a campaign to reach their targets and more inspections are on the horizon. More and more business owners will need to justify their income and lifestyle in the future as inspections increase and become firmer. Unless fraud has been committed the HMRC generally gives at least seven days’ notice of an inspection visit. Business owners should contact their professional tax advisers immediately upon receipt of their inspection notice.
If an inspector calls…
If you do find an HMRC inspector on the doorstep, remember the first rule: do not invite them in. Business owners should not feel awkward about this, providing you are courteous, the inspectors should respect that you are taking a diligent approach to protecting the premises. The next step is to find out key details such as the inspectors name, office and the purpose of the visit. You should then call your tax advisers. They will speak with the inspector to ascertain the reason for the visit and if it is practical for them to attend. Professional support is vital as tax inspectors are highly trained and it can make the difference between a successful outcome and a very large tax bill.
Unfortunately for the taxpayer, HMRC often makes a presumption of guilt. If inspectors turn up unexpectedly, business owners are inevitably unprepared, both mentally and in terms of documentation. In opening meetings inspectors will follow a line of questioning in search of evidence to support conclusions they have already reached. Clarity of mind is required to handle such situations well.
Reasonable obstruction
If the inspector has not arranged the visit in advance and has no search warrant or official notice, your tax advisers can ask them to withdraw, on the basis that the client is being advised not to grant access to any business premises, assets or information. HMRC officers may argue that their visit is being obstructed, but this is not a criminal offence. A civil penalty of £300 could be imposed in certain circumstances, but you should not be intimidated by the threat of this. The consequences can be more serious if you just let the inspector in. If an HMRC inspector does enter the premises, they should be accompanied at all times and cannot open cupboards or enter rooms unless invited to do so.
Inspecting books and records
If made available to them, HMRC officers may inspect and copy business records, including statutory books, business books and papers, documents relating to PAYE, VAT and other business matters. Private records may also be inspected if they contain business transactions, as can assets in the form of stock. Inspectors can also interrogate computer records and will try to remove computers. It is possible to verbally refuse their removal, but not physically. Always obtain a formal receipt for computers, stock and any other records that are removed. Note that while obstruction is a reasonable action with limited consequences, concealment of tax-related documents is not. Deliberately hiding or destroying documents can amount to a criminal offence, as well as attracting a penalty.
Keeping out of the spotlight
HMRC inspections and investigations are stressful, and are to be avoided completely if at all possible. Companies which are selected for checks and inquiries are almost always consistently late in filing their tax returns. To keep yourself under the parapet, you should always try to file on time. Including estimates and round-sum numbers could attract attention so should also be avoided. It’s important to keep books and records up to date, this includes all accounting and business records, details of income and expenditure, assets and liabilities, paying-in slips, purchases and sales information, VAT and PAYE details.
