I have just received a notice of enquiry demanding all my books and records - what should I do?
First, it is important to identify the specific legislation under which your books and records have been requested. This could give an indication of the nature of the enquiries and help a knowledgeable advisor decide on the appropriate strategy. An early approach to a specialist is recommended.
It is probable that the request has been made as part of a self assessment enquiry, which allows an in-depth examination of any tax return even if HMRC has found no reason to believe that the return is incorrect. It can include a thorough review of supporting data, such as all of your business books and records.
However, even though HMRC’s powers were significantly enhanced in 2008, provisions in the legislation limit the scope of an inspector's powers and he must follow internal HMRC instructions and guidelines. Engaging a PKF specialist can ensure that you are fairly treated and unnecessary costs are not incurred.
Clearly there is much to think about before the Inspector sees the books and records. Issues that may need to be considered include:
- Should we (can we) appeal against the notice? If so, on what grounds and by what date?
- Is the notice correct? It is not unknown for notices to be received outside the statutory time limit, or for them to relate to a period that has already been enquired into.
- What specific books and record are requested? Are all of them relevant to the Inspector's task or can it be argued that some should not be supplied? Could the Inspector be on a "fishing" expedition, perhaps even concerning the affairs of other taxpayers?
- Where does the Inspector suggest the records should be reviewed? Is this location advisable/feasible/practicable and do we have to comply?
- Is a meeting or a visit to the business premises sought? If so, when, where and what is on the agenda? Who should attend?
- What deadline has been given to comply with the notice? Do we need more time to collate the information requested? Has the legislation concerning time limits been adhered to?
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HMRC has just walked into my office - what should I do?
First, establish precisely HMRC's reasons and authority for demanding entry. Different rules and regulations regarding powers of entry apply to different circumstances. For example:
- Entry with a warrant – this avenue is reserved for the most serious of cases (suspected major tax fraud) and the warrant will only be issued after judicial approval.
- So-called “Schedule 36” powers – under this regime HMRC can make unannounced visits to business premises in certain circumstances. You should check that the visitors have the appropriate authority for this.
PKF specialists can advise on the validity of the inspecting officer's authority and any relevant restrictions in the scope of the review. This can help prevent an inappropriate "blanket" investigation and will ensure that the visit by HMRC staff is kept within statutory powers.
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HMRC is enquiring into my tax return - why me?
Under the self assessment regime HMRC operate a "process now, check later" system. This means that the figures included in your tax return are assumed to be correct and will initially be input into the tax system without question. However, HMRC reserves the right to enquire into any tax return (within a specified time limit) to check that the details submitted are correct. Such enquiries can range from one specific aspect of the return to a review of all the books and records supporting the figures in the return.
In some cases, an Inspector may have opened the enquiry because he is dissatisfied with the figures returned, other enquiries are started at random, although few cases fall into the latter category.
Enquiries can be intrusive and intimidating affairs with over-zealous Inspectors seeking access to all sorts of books, records and personal data. However, specific legislation exists restricting the scope of an Inspector's powers. In addition, there are internal HMRC guidelines and instructions on the subject. PKF investigation staff are familiar with all the self assessment rules, and other guidelines, protecting the taxpayer's rights so we can help to keep the whole process fair and make it as painless as possible.
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I have had a letter from something called the Specialist Investigation office asking for a meeting. Who are they and what should I do?
Speak to an experienced specialist advisor immediately!
Specialist Investigations (SI) is staffed by extremely skilled, highly trained and experienced investigators. It concentrates only on the most serious enquiries. A letter from SI is not routine, nor will you have been chosen for a random enquiry by that office. Considerable sums of money are usually at stake and mishandling in the early (or any) stages can be disastrous, not just financially but because of the potential threat of imprisonment.
The most common SI investigations are carried out under Code of Practice 9 - cases of suspected serious tax fraud - or Code of Practice 8 - where serious fraud is not suspected but very large amounts of unpaid tax are thought to be due In either case, a bespoke strategy must be created for each investigation and it is vital that you approach a skilled tax investigation specialist immediately. This specialist will devise a plan, provide a buffer between you and HMRC and manage the investigation to achieve the best possible result.
At the end of an SI investigation, there is likely to be a financial penalty to pay as well as any additional tax (and interest) due. The penalty can be as much as 100% of any additional tax due – set to rise to 200% in cases involving offshore evasion. The penalty can be reduced to a lower percentage, for example by fully co-operating during the investigation and making a full disclosure to HMRC. An experienced specialist will be able to guide you throughout the investigation so that the additional tax and penalties are kept as low as possible.
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The Specialist Investigations office has sent me a booklet referring to something called CIF. What does this mean?
CIF is the title commonly given to SI investigations, under Code of Practice 9 (COP 9) - cases where serious tax fraud is suspected. Allegations under COP9 are not made lightly and these cases will take many months (and can take several years) to complete. Following a formal interview, HMRC will usually require a detailed disclosure report to be prepared. The period covered by that report will be negotiated between the specialist tax advisor and the investigating officers but it is likely to cover your personal and business history for several years.
In effect, CIF is an opportunity to make a full disclosure of all tax irregularities and reach a financial settlement with HMRC (for tax, interest and penalties) without receiving a criminal record. It is therefore vital that you are properly and expertly guided through the process, particularly as false declarations can result in prosecution.
Anyone who has received a COP 9 opening letter from HMRC will not be eligible to participate in the Liechtenstein Disclosure Facility.
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If I send all last year's books and records to the Inspector as demanded, I may have trouble keeping this year's records properly. Also, how will I be able to answer any questions without my records to refer to?
These are common issues, especially if there are too many books and records to be copied. However, there are only limited circumstances when the Inspector can demand delivery of documents, so the specific legislation under which the request is made should be identified. There are a number of legitimate reasons and ways to decline such a request or to arrange for the records to be reviewed at a more convenient location than the HMRC offices. The precise circumstances need to be considered carefully before devising an appropriate strategy and response.
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I am under self assessment enquiry and the Inspector wants to meet me. I believe that my tax affairs are in order but am very nervous about meeting a government official. What should I do?
The self assessment legislation does not give HMRC the right to demand that you attend such a meeting. Even if a meeting is agreed, the Inspector cannot dictate where it is held and you should insist that a formal agenda listing the key issues to be discussed is provided by the Inspector in advance.
On no account should you attend a meeting without specialist representation. This will ensure that the discussion is confined to what the Inspector is permitted to ask and is conducted within the law and relevant HMRC guidelines.
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My family company is under self assessment investigation and the Inspector has demanded that I send him copies of my own private bank statements. Must I comply?
This is a very difficult question to answer without knowing the full history of the enquiry to date. The Inspector should not routinely make this request at the outset of an enquiry. Remember that the enquiry is into the company, not you personally. However, depending on the information the Inspector discovers, your personal affairs may also be reviewed.
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I am very unhappy with the way HMRC has handled my affairs - it's been one mistake after another. Is there anything I can do?
The simple answer is "make a formal complaint". Many taxpayers shy away from complaining and have to bear the brunt of the additional time, stress and costs caused by HMRC’s mistakes. There are several routes that can be followed depending on the severity of the mistake or whether an existing complaint has not been resolved.
HMRC has issued a Factsheet on its complaints procedure which gives certain assurances and confirms that you will not be treated differently in future just because you have made a complaint. If costs, such as professional fees, have been incurred as a result of HMRC's mistakes, they can be reclaimed.
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I know that HM Revenue and Customs only has a certain time limit to enquire into my tax affairs for a particular year. Why have I suddenly received an information notice about a year that I thought was closed?
It is correct that the Revenue only has a limited time to enquire into your tax return. However, if the Inspector believes he has made a "discovery" (he has found out about something that has not previously been disclosed on your tax return), then a closed year can be re-opened. There are only limited circumstances in which this can validly happen, for example, if you had deliberately claimed something that was not due or had not fully disclosed an issue. In addition, under relatively new legislation introduced in 2008, HMRC can ask for data if it merely suspects that there is something to discover, in order to investigate if that suspicion is correct. It is sensible to ask a specialist to review whether a "discovery" or a request for data is valid or if it should be challenged.
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