New Powers since April 2009 – HMRC Tax Investigations
New Powers since April 2009 (Information and Documents)
The Finance Act 2008, Sch. 36, para. 1 (1) gives HMRC the power to obtain information and documents that are reasonably required for checking a person’s tax position.
Reasonably Required
When considering whether HMRC’s request for information is reasonable, the first consideration is whether the information has a direct bearing on the person’s liability to tax. That is past, present and future.
If the information has no bearing whatsoever on the person’s tax position, it cannot be reasonably requested. This includes the situation when a year has gone out of date for the assessment. It would not be reasonable to use the information powers if the person’s tax position cannot be corrected.
It must be borne in mind however that HRMC do not need to have doubts about the accuracy of a Return before using the information powers.
The information needs only to be required to check a person’s tax position and not show that it was wrong. It will be remembered that these powers can be used for random compliance checks.
Even if the information has a direct bearing on the person’s tax position, the use of information powers must also be proportionate.
That is, the burden of providing the information must be proportionate to its importance in establishing the person’s correct tax position.
One must always be particularly alert to the possibility of a request for information which is far more expensive than can be justified and arises out of the officer’s fear of “missing something”.
HMRC encourages its officers to try at the outset to anticipate all the information they might require and so avoid a succession of requests for additional information.
This can lead to a burdensome request for a great deal of information, much of which appears to be of little or no bearing on the matter being checked.
One should consider whether it would be better to encourage the officer to limit the initial request for information to the matter being checked and then make further requests if and when the investigation demonstrates some additional matter or matters need further checking.
Contact KinsellaTax on 0800 471 4546.
Checking Documents
Finance Act 2008, Sch. 36, para. 58 defines “checking” to include carrying out an investigation or enquiry of any kind.
As part of the review of powers and safeguards following the merge of Customs and Excise and the Inland Revenue, HMRC trialled various checks to ensure compliance comprising from a telephone call to a full in depth investigation.
These would all fall within the statutory definition of “checking”.
Contact KinsellaTax on 0800 471 4546.
Statutory Records
HMRC have the absolute right to inspect the statutory records and there is no appeal against a notice requiring the production. Statutory records are defined by the Finance Act 2008, Sch. 36, para. 62 as information or a document which the person is required to keep and preserve under the Taxes Act and VATA 1994 or any other enactment relating to that made under it.
They continue to comprise the statutory records until the period for which they have been retained has expired.
If the records are not business records, for example interest certificates for a non-business bank account, they can only become statutory records at the end of a chargeable period. This means that HMRC has only the right to inspect them after the end of the chargeable period they relate to although they may be able to require them by way of an information notice if the necessary conditions are fulfilled.
Any dispute over whether a document is a statutory record must be decided by the Tribunal on an appeal against an information notice or against the imposition of a penalty for failing to comply with the notice.
Contact KinsellaTax on 0800 471 4546.
Tax Position
Tax position is defined by the Finance Act 2008, Sch. 36, para. 63 (1) and 64 as a person’s position with regards to the following:-
- Past, present and future liabilities to tax.
- Penalties or other amounts payable in connection with any tax
- Claims, elections, applications and notices in connection with any tax.
A person’s tax position includes their position with regards to the following:-
- Income tax including deductions made under PAYE and the Construction Industry Scheme (CIS)
- National Insurance contributions
- Capital Gains Tax
- Corporation Tax
- VAT
- Relevant foreign tax
Relevant foreign tax is defined by Para. 63 (4) as:-
- Tax of any EU member state covered by the exchange of information provisions under the Directive of the Council of the European Communities dated 19th December 1977.
- Any tax or duty of a non-EU member state covered by enforcement provisions made under FA 2000 s. 173.