Provided it is reasonably required for the purpose of checking a person’s tax position, FA 2008, Sch. 36, para. 10 permits an officer of HMRC to enter a person’s business premises and inspect:-
They do not, however, have the power to enter or inspect any part of the premises that is used solely as a dwelling.
Para. 10 (3) defines:-
In addition to the power to inspect business premises, para. 11 gives HMRC the power to inspect premises used in connection with taxable supplies, etc.
When inspecting business premises under FA 2008, Sch. 36, para. 10 the officer can also inspect any business assets that are on the premises. Business assets are defined by Para. 10 (3) as any assets that are owned, leased or used in connection with carrying on of a business, excluding documents.
Business assets do not include vehicles used only for travel between home and work. However, if a vehicle is used in carrying on a business it can be inspected both as a business asset and as business premises.
When inspecting business premises under FA 2008, Sch. 36, para. 10, the officer can also inspect any business documents that are on the premises.
Business documents are defined by Para. 10 (3) as documents, or copies of documents:-
Paragraphs 15 and 16 permit the officer to:-
The restriction in Part 4 of Sch. 36 apply to the documents that can be inspected.
The inspection powers do not permit HMRC to inspect premises that are used solely as a dwelling (see FA 2008, Sch. 36, para. 10 (2)). This will not prevent the inspection of any part of the premises that is used for business purposes, including:-
HMRC acknowledge that a home cannot be inspected if business records are simply stored there because there is no other place to keep them, and there are no business activities or business assets at the home. Nor will they treat a home as business premises if work that is normally done at the office is occasionally done there in the evening or at weekends.
However, any home in respect of which an adjustment is made in the accounts for ‘business use of home’ can be inspected using HMRC’s inspection powers, although the inspection must not extend to any part that is used solely as a dwelling.
It should be remembered that the occupier has a right to privacy under the Human Rights Act 1998 and can refuse entry. However, if the inspection visit has been approved by the Tribunal, the occupier will be liable for a penalty for obstructing the visit if they refuse entry, although the officer is only permitted to inspect that part of the premises that is used for the business.
There is no right of appeal against an inspection visit. If the Tribunal has approved the visit and the occupier refuses entry on the grounds that the Tribunal could not have been satisfied that the inspection was justified, any challenge to the approval would have to be by way of judicial review.
HMRC instructs their officers that inspection of a person’s home should be avoided wherever possible unless they are invited there by the taxpayer.
FA 2008, Sch. 36, para. 10 (3) defines ‘business premises as premises (or any part of premises) that the officer of Revenue & Customs has reason to believe are (or is) used in connection with the carrying on of a business’.
If a person is carrying on a property letting business and lets properties to others who use them for business purposes, those premises (and any business assets or business documents) can also be inspected but only if this is necessary for the purpose of checking the landlord’s tax position. If, on the other hand, the properties are let solely as dwellings, they cannot be inspected for the purpose of checking the landlord’s tax position.
Premises are defined by FA 2008, Sch. 36, para. 58 to include:-
A business includes a trade, profession or vocation carried on by a sole trader, partnership or company, and any person that is, or is required to be, registered for VAT.
In addition, Para. 60 states that references to carrying on a business include:-
Although they have not so far done so, HMRC is empowered to specify in regulations what should be treated as carrying on a trade.
An officer can only enter premises for the purposes of an inspection if the inspection visit has been arranged by agreement with the occupier or approved by the Tribunal.
The power to enter and inspect premises does not give the officer the right to search them for assets or documents. This means that they can look at what there is and can be seen but they cannot look for something that is not visible. HMRC instruct their officers that they can open things to look inside as long as they are not searching for something. They advise that it is preferable to ask the person to open things so that they can inspect the contents.
The officer is not permitted to force entry or to search the premises. There is no right of appeal against an inspection visit but the occupier can refuse entry. If the officer is refused entry, approval for the visit can be sought from the Tribunal.
If the inspection visit has been approved by the Tribunal and the occupier refuses entry on the grounds that the Tribunal could not have been satisfied that the inspection was justified, any challenge to the approval would have to be by way of judicial review. Part 7 of Sch. 36 provides for a penalty to be charged where an occupier refuses entry for an inspection visit that has been approved by the Tribunal.
HMRC provide their officers with the following example of what ‘enter and inspect’ means for these purposes.
The procedure for carrying out an inspection is dealt with in FA 2008, Sch. 36, para, 12 and 13. Inspections can be announced or unannounced.
The minimum notice to be given for an announced inspection is seven days. It can be less if:-
If seven days’ notice is insufficient for a particular business, this should be made clear to the officer who should take this into account when agreeing a reasonable time for the visit. If the officer wants to carry out a visit with less than seven days’ notice they must explain the reasons for the short notice.
It is important that taxpayers are aware of the need to be informed by their staff of any approach made by HMRC to arrange an inspection visit so that agreement to the date and time is made by a suitably senior and authorised person.
If the visit is announced, HMRC may issue an information notice in respect of the business records and any other information and documents needed for checking the person’s tax position so that they are available at the time of an inspection visit.
An unannounced visit will be made if HMRC consider it necessary that it should be carried out with agreement or advance warning. An unannounced visit can only be carried out either:-
A written notice permitting an unannounced visit must be handed to the occupier, together with the Factsheet on unannounced visits. The notice must show the date and the time the inspection visit is to be carried out.
If something arises that requires the postponement or curtailment of an inspection visit, this is not a lack of cooperation provided arrangements are made for continuing with the inspection at a later time when it is convenient for both parties.
There would, however, be a failure to cooperate if the occupier:-
If the occupier refuses to agree a date and time for the inspection visit, the officer is likely to consider arranging for an unannounced visit.
If entry is refused the officer must withdraw – they have no right of entry. Their next action will depend on whether or not the inspection visit was approved by the Tribunal:-
FA 2008, Sch. 36, para. 11 permits HMRC to enter and inspect premises that the officer has reason to believe are used:-
The power does not require that the inspection is for the purpose of checking a person’s tax position.
As well as inspecting the premises, the officer can inspect:-
As with the power to inspect business premises contained in para. 10, para. 11 does not permit HMRC to enter and inspect premises used solely as a dwelling.
Premises are defined by para. 58 to include:-
In the course of the inspection, the provisions of FA 2008, Sch. 36, para. 15 – 17 permit the officer to:-
Questions can only be put about the things that have been inspected. The occupier can refuse to answer any questions but if the Tribunal has approved the inspection and the questions relate to the items that can be inspected; a penalty can be charged for obstructing the inspection.
All inspection visits, whether announced or unannounced, must be at a reasonable time – generally normal business hours for the particular business. A visit starts at the date and time:-
The officer carrying out the inspection must:-
The officer must give the copy of the inspection notice to the occupier of the premises if the occupier is present at the beginning of the inspection. If the occupier is not present at that time, the Inspecting Officer must give the notice to the person who appears to be in charge of the premises. If this is not possible, the Inspecting Officer must leave this notice in a prominent place on the premises (FA 2008, Sch. 36, para. 12).
Under FA 2008, Sch. 36, para. 13, the Tribunal can be asked to approve an inspection visit, either announced or unannounced. Their approval will normally be sought if the occupier objects, or is expected to object, to the inspection. The Tribunal can only give their approval if:-
If the Tribunal has given their approval, a penalty can be charged for obstructing the inspection.