In 2015 HMRC carried out 761 property searches, compared with 593 the previous year. This year it is expected to exceed 1,000. HMRC are intent on more criminal prosecutions in order to pressurise people into declaring undeclared income in whatever form it takes. You only have to read the manifestos, all political parties undertake to get the unpaid tax brought in, thought to be about £40/50 billion.
HMRC were always known to be over the top in their searches and raids and since the combination of HM Inland Revenue and HM Customs & Excise into HMRC, it would appear that the overall intention is to be more aggressive and the bigger teams are undertaking raids using powers they have to obtain warrants from judges and magistrates.
Under Section 36 of the Finance Act 2008 the powers to extend inspections are now enormous. We have a case where a young man formed a limited company whilst at university, he left and went into paid employment. After a number of years he received a letter from HMRC with a long list of questions, asking everything about his work history, bank accounts etc, and it all turned out to be because he had formed this company which was dormant and had never been used. Because he hadn’t registered for self-assessment it was enough to have HMRC issue the letter of enquiry.
We recently dealt with a case where HMRC had put in their title ‘Tax Evasion’ and the judge fully understood our client’s position when we said we objected to that because it indicated our client was committing fraud and the judge said:
“HMRC subsequently confirmed that, at present, it was not pursuing a criminal enquiry into the appellant’s affairs but only a civil enquiry. Nonetheless, the appellant was perturbed by the letterhead and in May 2016 instructed Mr Kinsella of Kinsella Tax 2014 Limited to represent it. In my view, HMRC’s letterhead was unfortunate and the concern caused to the appellant was understandable.”
The ‘reasonably required’ test used time and time again to open enquiries which may or may not lead to criminal investigations.
HMRC have no right to meet the business owner during their visit and with regards to business premises, always remember it is where the business is carried out. If it is run from home, HMRC may visit the area used for the business but not the private area used for living.
It is said that HMRC are required to give at least seven days’ notice of a visit other than in exceptional circumstances. We have an occasion at the present time where two women turned up and started questioning our client (before he became our client) without giving a reason for their visit and later wrote a long letter saying further to our visit we need this, this, this. We’ve written to them saying, please advise us under which legislation you are seeking to carry out this enquiry and why was no notice given to our client.
Time and time again we find these sort of things happening and we basically put it down to less experienced officers being used to undertake work because HMRC are so overwhelmed by the amount of work they have. Do remember you have a right to refuse HMRC officers entry but be careful. In serious cases, of course, formal authority will have been secured from a tribunal and refusing entry or obstructing entry where a tribunal has been involved usually incurs a penalty of £300, followed by daily penalties of £60 until the visit is allowed unless there is a reasonable excuse eg wanting your accountant to be present.
If you have been given notice of a visit make sure you have a specialist advisor on hand. Someone who knows exactly what to do. If an inspection notice is provided then check it very carefully and clarify:
Take care, consider carefully the implication of refusing access.
Again, KinsellaTax urges you to have a specialist advisor on hand, it’s no good saying later, I should have had somebody with me, probably the damage is already done, people tend to say silly things during visits without giving some thought. They think if they are asked a question they have to give an answer instead of declining by simply saying politely please can I consider that and come back to you later.