Finance Act 2008, Sch. 36 contains inspection powers that enable HMRC to inspect business premises, business assets and statutory records. Such inspections form an important part of carrying out compliance checks.
The powers must be used reasonably and proportionately and can only be used to inspect business premises. They cannot be used to inspect premises that are used wholly for residential purposes. It will be noted that the premises must be used wholly for residential purposes to be exempt form the powers. If they are used only partly for business purposes then they are subject to HMRC’s inspection powers.
There are safeguards built into the legislation intended to ensure that the use of the powers is reasonable and proportionate. HMRC have also put procedures in place to ensure that staff are aware of the limitations on the use of these powers and of the need not to breach a taxpayer’s right to privacy under the Human Rights Act 1998.
Announced visits will usually be by prior arrangements, following an informal request asking for information and an inspection of the business records and premises. If the taxpayer refuses an informal request for a visit, the officer can arrange a visit by issuing a formal notice.
If the nature of the risk requires it HMRC may carry out an unannounced visit, without giving any notice of the intended visit. No unannounced visit should be carried out unless it has been approved by an Authorised Officer.
If the officer believes that their inspection may be obstructed they can, with the approval of an Authorised Officer, apply to the Tribunal for their approval to a visit. If this is given, the taxpayer can be penalised for obstructing the officer carrying out the inspection.
At the start of the visit the officer will give the taxpayer a copy of the Fact Sheet on visits and explain what will happen during the visit. They may indicate that they would like to discuss the records with the person who keeps them. They can only do this with the agreement of the taxpayer.
The taxpayer has the right to refuse to allow the officer to enter the premises. However, unless the taxpayer agrees to a visit at a later date, the officer will consider asking the Tribunal for approval for the inspection. If the Tribunal has approved the inspection, the taxpayer can be penalised for obstructing the visit unless there is a reasonable excuse such as illness or unavoidable delay. The penalty for obstructing an inspection that has been approved by the Tribunal is £300 plus a daily penalty of up to £60.
In the course of a visit the officer has a right to inspect the premises, the business assets and the statutory records that are on the premises at the time of the visit. To see any records other than the statutory records the officer needs the taxpayer’s agreement. Otherwise, they must have been requested by a taxpayer notice requiring them to be produced at the time of the visit.
There are some documents that the officer cannot request in a taxpayer notice. If such documents are included amongst those provided at the inspection, whether deliberately or accidentally, the officer must draw the taxpayer’s attention to the fact that they have no right to inspect them without the taxpayer’s consent.
Inspecting things means nothing more than looking at them. It does not include opening boxes and searching in them. Nor does it include walking unaccompanied around the premises, which requires the taxpayer’s agreement. The officer should not mark the records that are inspected in any way, even to indicate that they have been checked. Goods or assets can, however, be marked to show that they have been inspected, although the officer must not damage them when do so.
The officer can record the information obtained in the course of the inspection and can take copies of the documents inspected or make extracts from them, if necessary by removing them from the premises. If a written receipt for any documents removed is not offered, the taxpayer can request one.
Documents removed by an officer should not be retained longer than necessary. If any are lost or damaged the taxpayer is entitled to compensation.
Unannounced visits will be used to tackle the black economy and where serious fraud is suspected. HMRC will consider making an unannounced visit where:-
An Authorised Officer must approve an unannounced visit and they should only give their approval if it is the only way of establishing the correct tax position. Otherwise, HMRC’s actions would not have been reasonable and proportionate.
Unannounced visits are frequently made by Missing Trader, Hidden Economy and Labour Provider teams. Where it is anticipated that the inspection will be obstructed, HMRC will seek approval for the visit from the Tribunal so that the taxpayer can be penalised for any obstruction.
As with announced visits, unannounced visits must be made at a reasonable time and the occupier of the premises must be given written notice of the inspection, together with the Fact Sheet on unannounced visits. The officer will then explain the reason for the visit and how they intend to carry it out.
If the taxpayer is present the officer must advise them of their right to ask their agent to be present but need not delay the start of the inspection to await their arrival.
When an announced visit is arranged, either by agreement or by way of a formal notice, the taxpayer will be notified of the date and time of the visit, the name of the visiting officer and the records that are to be inspected. They will also be sent the Fact Sheet on visits explaining their rights and responsibilities.
As the only documents that can be inspected using the inspection powers in Finance Act 2008, Sch. 36 are those that are held on the business premises, the officer may issue a notice requiring that the necessary documents are produced at the premises at the time of the visit. It is likely that if the visit is arranged by way of a formal notice rather than by agreement the officer will also issue a notice requiring that the records should be produced at the business premises.
Although a visit arranged by agreement might, with the taxpayer’s agreement, be made with less than seven days’ notice, if it has not been possible to reach agreement on the time of the visit, the officer must give at least seven days’ notice.
With the approval of an Authorised Officer, the officer can apply to the Tribunal for their approval of a visit to the business premises. Approval will be sought from the Tribunal if entry to the business premises has been, or is expected to be, refused.
The object of seeking the Tribunal’s approval is to deter non-compliance. A penalty can be imposed on a taxpayer who obstructs a visit that has been approved by the Tribunal.
At the same time as seeking the Tribunal’s approval for the inspection visit, the officer will also seek approval for a taxpayer notice to make the records available at the premises if they are required there for inspection. By obtaining the Tribunal’s approval, the officer ensures that no appeal can be made against any of the requirements in the notice.
If the officer is given the Tribunals’ approval for an inspection visit, the terms of the approval must be observed. If the approval was for an announced visit, the officer cannot instead decide to make an unannounced visit.
As in the past, compliance checks for PAYE/NICs and VAT will normally be carried out by visiting the business premises.
In the case of most small and medium-sized businesses (SMEs), HMRC expect that compliance checks will be carried out most frequently by asking for documents and information to be sent to an HMRC office. They would normally expect compliance checks to be made by way of a visit to the business premises only if it is convenient for the officer and the taxpayer to see the business records at the business premises, or if it is necessary to:-
HMRC’s Risk and Intelligence teams select taxpayers who are to be visited by Local Compliance officers. Large Business Service (LBS) have always carried out visits to the large business they deal with and they will continue to make their own selections.
Before carrying out a visit to business premises as part of a compliance check, the risk should have been identified and a note made of why it is best addressed by way of a visit instead of calling for documents and information. The timing of the visit should be reasonable and the officer must be able to show that the compliance check is reasonable and proportionate so that the conditions of Art. 8(2) of the European Convention o Human Rights (ECHR) are satisfied.
If the taxpayer has a good reason why the officer should not visit their business premises, this should be made known to the officer. This might be due to lack of space, disruption caused to the operation of the business or the adverse effect on customers. The officer can then arrange to see the business records at an HMRC office or the premises of the practitioner if they accept that there is good reason not to visit the business premises.
Officers are reminded that:-
‘Managers are ultimately responsible for ensuring that visits are reasonably required and proportionate to the risk and that inspection powers are used in a way that minimises disruption and interference with taxpayers’ right to privacy.’
The taxpayer will always be handed a Fact Sheet on visits explaining their rights and responsibilities.
The powers contained in Finance Act 2008, Sch. 36 can only be used to carry out inspection visits to business premises. HMRC do not have the power to inspect premises that are used wholly as a private residence unless invited to do so by the taxpayer. If the premises are used partly for business and partly as a private residence, HMRC can inspect the parts used for the business.
‘in relation to a person, premises (or any part of premises) that an officer of Revenue and Customs has reason to believe are (or is) used in connection with the carrying on of a business by or on behalf of the person.’
It is the view of HMRC that a private residence may come within this definition if:-
They do accept, however, that where a person stores records at home because there is nowhere else to keep them, but has no goods or other business activity at the home, then the premises cannot be inspected at the home unless the taxpayer invites the officer to do so.
HMRC have indicated that they would consider it reasonable to conduct an inspection at a person’s home in the following situations:-
HMRC recognise that they cannot visit homes used in connection with a business in the following circumstances:-
Where one of the partners in a partnership works partly at home, HMRC would consider that the home would be a business premise of the partnership and might be inspected to check the proportion of expenses claimed as a business expense.
An information notice must state the time by which the information required is to be provided. The statutory provisions do not say what is a reasonable time to allow but it is normally taken by HMRC to be 30 days. They will specify a date 40 days from the date of issue to allow for delivery, weekend and holidays.
Longer period than 30 days can be specified in the notice, particularly if there is a large amount of information to be provided. The taxpayer should contact the officer immediately it becomes clear that more time is needed. If the officer considers that the request for more time is reasonable they will agree it.
Before turning down a request for more time, the officer will take account of the fact that not being given a reasonable time to comply with a notice is grounds for appeal against it.