Private Residences Checks
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.
Finance Act 2008, Sch. 36 permits HMRC to enter premises which:
‘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:-
- The business is run from the home
- Business assets are stored at the home
- Business records are kept at the home
- A home is registered as the principal place of business of VAT
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:-
- Where stock is kept at home
- In the case of an outworker the stock or assets kept at their home may be inspected – the taxpayer should be given an opportunity to make the items available for inspection elsewhere if this is practical
- At a farm the office, fields barns and areas involved in business activity can be visited but the private areas of the farm house and private garden cannot be visited without invitation
- In the pub the cellar, bar , commercial kitchen, store rooms and any vacant rooms which are let can be visited but the private living accommodation cannot be visited without invitation
- Where a shop ha a flat above, the commercial premises, including offices and store rooms, can be visited but any separate premises used solely as a private dwelling, for example a flat above the shop premises, cannot be visited without invitation
- In guest houses and hotels the bedrooms, areas available for guest use, kitchens used to prepare guest meals, store rooms and offices can be visited but any private areas of the guest house, staff bedrooms and occupied guest bedrooms cannot be visited without invitation
- At a surgery the offices and waiting rooms can be visited as well as any consulting rooms not in use
- Where it is appropriate to physically check that the proportion of household expenses claimed as a tax deduction is reasonable
- Where there is evidence that a home is used for a business and that business has not been declared to HMRC
- Where there is evidence that the business connected with the premises is being misrepresented to HMRC, for example:-
- If a trader has no discrete business premises and reports a large turnover and claims substantial VAT repayments, HMRC need to verify the volume of trade passing through the address to check that the repayments are valid
- If a trader has a large turnover in high value commodities but no discrete premises and no stock
- If a mobile telephone number offering services, such as betting tips/personal services/horoscopes, is registered to a private home, HMRC need to call to establish the nature of business being operated from that address
HMRC recognise that they cannot visit homes used in connection with a business in the following circumstances:-
- A director or employee is working from home
- A director or employee has temporarily taken some records home from other business premises to work on
- Premise are rented to another person and used solely by them as their home
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.
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