The first indication that a taxpayer (and his adviser) will usually get that his case has been taken up for investigation by fraud investigators is an invitation by letter to attend an interview. The suggested venue for the meeting might be the local tax office, the adviser’s office, the business premises, or even the taxpayer’s home. The invitation will be accompanied by Code of Practice 9 (2005) (Code of Practice 8 in cases where serious fraud is not suspected). Where a code of practice is not enclosed, the adviser should be aware that this is a case where criminal prosecution is being considered. He should immediately obtain specialist legal advice.
There will invariably be two investigators at the opening interview, one of whom leads while the other takes notes. They are expected to be polite but they will aim to impress on the taxpayer the seriousness of the matter by avoiding small talk. However, once the formal challenge as to the accuracy of the returns and accounts has been made and the interview moves on to become an information-gathering exercise (with which the adviser will be more familiar from tax office investigations) the atmosphere will probably become somewhat less tense. This will be deliberate on the part of the investigators in the hope that the taxpayer will become talkative and so provide more information than he might otherwise.
Any geniality is, of course, something of an illusion because the substance of everything said will be noted and taken into account when the disclosure report is received
At this point the formal part of the opening interview is over and matters can be brought to a conclusion on the basis that a report is to be prepared quantifying the irregularities. Normally, however, this is inadvisable as the investigator’s areas of concern. If the interview continues, the questioning will move on to more familiar ground as in a local tax office enquiry, i.e. lengthy and detailed questions about the business and private affairs of the taxpayer.
Although the questioning is less formal, it is still essential that the replies given are accurate – the client should be in no doubt of the importance placed on this part of the interview by HMRC, and be wary of making ‘off the cuff’ remarks. He should be dissuaded from giving answers of which he is not sure and an assurance given to the investigator that the matter will be researched and included in the report to be submitted at a later date.
The investigator will give particular attention to any potentially contentious items and to this end will ask for full details of any gambling activities or cash hoards that have been referred to. In the case of alleged cash hoards, he will ask in detail about the taxpayer’s cash handling habits, establishing where his cash comes from, how it is spent and what happens to any surplus. He will also ask about any non-taxable receipts such as loans, legacies, gifts, etc. and whether the taxpayer has himself made any gifts or loans.
At the close of the interview, the investigator will probably ask to visit the taxpayer’s business premises and his home and will request access to any safe or safety deposit box. It should be noted that HMRC have no right to examine these and that it should be therefore not be seen as lack of co-operation if such a request is met by a (polite) refusal. The investigator will also request access to the adviser’s working papers. In addition to the working papers underlying the accounts under investigation, he will expect access to the working papers originated in the course of preparing the investigation report.
The formal questions that used to be asked at the start of a SCO enquiry and those asked at the start of a VAT enquiry will continue to be asked by Special Civil Investigations (SCI) under the new procedures. These are set out below.
Have any transactions been omitted from or incorrectly recorded in the boos of any business with which you are or have been concerned, whether as a director, partner or sole proprietor, to the best of your knowledge or belief?
Are the accounts sent to the HM Revenue and customs for each and every business with which you are or have been concerned, whether as a director, partner or sole proprietor, correct and complete to the best of your knowledge and belief?
Are all the tax returns of each and every business with which you are or have been concerned, whether as a director, partner or soul proprietor, correct and complete to the best of your knowledge and belief?
Are all your personal tax returns correct and complete to the best of your knowledge and belief?
Will you allow an examination of all business books, business and private bank statements and any other business and private records in order that HM Revenue and Customs may be satisfied that your answers to the first four questions are correct?
Have any transactions been omitted from, or incorrectly recorded, in the books and records of (name of legal entity) for which you are (responsible status)?
Are the books and records you are required to keep by HM Revenue and Customs for (name of legal entity) for which you are (responsible status), correct and complete to the best of your knowledge and belief?
Are all the VAT returns of the (name of legal entity) for which you are (responsible status) correct and complete to the best of your knowledge and belief?
Were you aware that any of the VAT returns were incorrect or incomplete at the time they were submitted?
Following the meeting, notes of the proceedings will be supplied by the investigator. Notes of a Special Civil Investigations (SCI) interview tend to be lengthy and detailed. The adviser should review these carefully, pointing out to the investigator anything that needs to be added or amended, and also watching out for prejudicial wording or inclusion of the investigator’s impressions. Silence on the part of the adviser will be taken by the investigator as acceptance of the notes.
It should be borne in mind that agreed notes can be produced as evidence of established fact in any subsequent proceeding taken against the client. Whilst it is unlikely that they would be sued in such a way, it will severely damage a client’s position if the information given in the subsequent report differs materially from details given at the meeting.