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Knock knock
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Page 31
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New powers allow the taxman to make a surprise visit, phone you unexpectedly or question third parties about your affairs.
From this April., Her Majesty's Revenue and Customs (HMRC) will have new powers that will effectively allow it to drop in on you when it feels like. These new powers have come about after a major review of deterrents, safeguards and procedures surrounding the tax system following the merger of HM Customs & Excise with the Inland Revenue in 2005.
The taxman already has wide-ranging powers to seek out information and to inspect your records and documents, This is nothing new, but while the tendency in the past was for such powers to be used as an enquiry progressed, under the new rules, there doesn't have to be that starting point of a formal enquiry.
It's going to be quite possible for the taxman to ask you for things entirely separate from any investigation of a specific tax return. And if there is an enquiry, it may well come via phone or even e-mail.
It's also worth noting that there will be powers to get information from someone other than you as the taxpayer. There are immediate safeguards to he found here in that the approach to the third party must he with your consent or must be formally sanctioned by higher authorities within HMRC. Basically, if a third party is approached for information you must be told.
Apart from documents protected by legal professional privilege, the taxman can access any of your documents. However, a key safeguard throughout these powers is that they have to be used 'reasonably'. Although that is quite a broad catch-all.
Checking up HMRC regularly visit businesses. They need to be able to check on the tax liabilities involving such items as valuing stock or checking your books for VAT purposes. While they have always had visiting rights, particularly for indirect taxes, their powers are being increased so that visits are easier for them to arrange.
If the taxman does want to visit you, you are perfectly in your rights to ask why and to see if there is an alternative way of meeting its needs. It may be quite sensible and efficient for people from the HMRC to visit, but, equally, it may cause disruption so it might be better to opt for a meeting at a mutually convenient time.
One key safeguard that was added to the legislation during its passage through Parliament is that premises that are used wholly as 'dwellings' your home cannot be visited. However, thousands of people who are self-employed or run a small business operate out of their own home. In principle, that does seem to render some part of their home liable to a visit, but HMRC has stressed throughout that it wants to use its powers sensibly, so it would try to visit in such circumstances by agreement.
Think seriously Under the new rules, HMRC will no longer have to wait for your tax return to be submitted before asking questions about issues it covers. That form of power is already available in the context of VAT, but it will now start to apply for income tax and corporation tax. This means HMRC will be able to ask to see the books during the year rather than wait until after the year end. The HMRC guidance emphasises it will not expect you to present everything perfectly What it would want to be assured of is that the records you are keeping are sufficient to be able to draw up proper tax returns in due course. In normal circumstances, HMRC is required to give seven day's notice before visiting. But what is also changing is that unannounced visits can be sanctioned internally by HMRC itself, rather than requiring the external sanction of the Tax Tribunal. In some cases, HMRC will seek the Tribunal's approval to make its visit more formal.
The extensions to HMRCs powers do need to be taken seriously. Businesses need to be aware of them. Operators should think about how to handle the more serious requests or visits that will start to flow from then onwards.