HMRC’s compliance checking powers enable them to carry out examinations of contemporary business records to check that they are adequate and comply with the statutory record-keeping requirements. Any errors can be discussed and corrected to avoid the submission of an incorrect tax return. Where an examination shows that there is the likelihood of something being dealt with incorrectly, the officer will be able to offer advice on the correct treatment before the tax return is submitted.
HMRC envisage that pre-return checks will be carried out:
- To assist with clearance applications, and where a pre-or-post-transaction ruling has been requested
- If a trader regularly makes a voluntary disclosure of errors after submitting a VAT return
- To check on activities suspected to be within the hidden economy
- Where a previous check has shown that the business record keeping was poor and an follow-up visit is needed to check that the position has improved – this will always be necessary where a penalty for poor record keeping has been suspended
- To check that the way information is kept on computer is adequate to ensure that a correct return can be made
- To find out about tax planning and avoidance schemes
- If fraud is suspected
As with any compliance check, a risk must have been identified before a pre-return check can be carried out unless the taxpayer has asked for a check or it is being carried out as part of HMRC’s random enquiry programme.
There are some specialised information and inspection powers that were not repealed by Finance Act 2008, Sch. 36. Where these powers remain, they should be used instead of the Sch. 36 powers and it would not be appropriate for HMRC to carry out a pre-return check. This will be covered in more detail in the Legal Background division when that division has been amended for the new provisions.