It is nearing that time of year again when HMRC send out a flood of new enquiry letters. You see, officers are currently encouraged to conclude enquiries before the end of a tax year while still maintaining a quota of open enquiries. HMRC officers are grouped in teams to manage enquiries. Those teams may consist of various tax experts. The team is expected to oversee and conclude a number of enquiries each year.
So as the enquiry letters come out, remember the following:
- Check that the enquiry letter is correct:
- Is the enquiry in time?
- Does the letter open the enquiry correctly?
- Is the letter dated?
- Is the enquiry an aspect or full enquiry? Where an enquiry is an aspect, it may be relatively easy to sort any issues out although the enquiry can still move to a full enquiry. If it is a full enquiry, it is likely that HMRC are aware of something amiss.
- Who is the letter from? Some may include certain terms such as “Technical Officer” “Counter-avoidance” “Fraud Service” “High Net Worth”. Any such references may indicate that the enquiry is being undertaken by a department that has investigated thoroughly before opening the enquiry or a targeting a specific area.
- Is there an informal information request and are HMRC entitled to the requested information?
- Consider why the officer is requesting certain information. For example, if an officer is requesting personal bank statements of a director whilst undertaking a company enquiry this could indicate a concern that undeclared earnings are passing through the personal account. Remember that HMRC may not be entitled to personal bank accounts.
- There is often one request for information amongst all the requests that is likely to be the difficult area of an enquiry. However, unless you think like HMRC, you might not realise which request it is.
- Is the time to respond appropriate? Often a request is made for considerable information in a short period. The normal time to respond is 30 days from the date of the letter. Sometimes the letter takes ten days to arrive, which reduces the period to respond. Quite often fulfilling the information request in the response time is simply not possible. You can negotiate a longer period, but you will have to provide reasons.
- Does the enquiry letter suggest meeting the taxpayer or a site visit? Generally, meetings and site visits are undertaken by two or more officers. Ahead of the officer undertaking such a meeting or visit, it often needs agreement with team leaders and part of the process is demonstrating the commercial reasons for the meeting. Such a request will indicate the seriousness of the enquiry.
- Do you know what information HMRC may have in their possession? It is often worth considering what information HMRC may already have. The number of random enquiries is now very small, and they are only undertaken to establish what the hidden economy looks like. That means, the enquiry is unlikely to be random and that HMRC has established a reason for the enquiry. HMRC receive information from other government department (land registry, passport agency, council tax, electoral role, licenses, planning etc.), third parties (including banks, insurance company, data gatherers, property agencies etc.) and that passed under exchange of information agreements from offshore.
- Check whether there have been any associated enquiries. It is not unusual for a VAT or PAYE audit to be undertaken within a year or so of a self-assessment enquiry into a shareholder or director. VAT and PAYE audits are often used to collect information in relation to a wider investigation.