HMRC’s Powers With Unannounced Visits
HMRC habitually ask for documents they are not entitled to see and they also make unannounced visits to workplaces and your home (if you work from home). It’s up to you to know the extent of HMRC’s limits and to make sure they do not cross the line.
In the tax industry there’s a bit of a buzz going around about HMRC Unannounced visits – there appears to be an increase right now and many tax professionals are not sure where they stand.
Here’s an extract from the ebook, Tax Investigation: What HMRC Don’t Want You To Know https://taxhell.co.uk/shop/ which sets out the issues in an informal way using a Q and A format.
What HMRC say: We will ask you to give us any information or documents that we may need.
The truth: I’m restricted in the documents I can ask for, particularly at the outset of the investigation; I can only ask for business records that I need for the investigation – nothing personal. And only within a 12-month window from when you submitted your last return. I’m certainly not meant to just fish in the hope of finding something to get a result; but I’ll fish anyway, it’s your lookout.
What HMRC say: In some cases we will ask to visit your business premises.
The truth: We would like to turn up unannounced to intimidate and embarrass you. We’d then like to go through all your paperwork before you prepare it properly so we can pick holes in it. You don’t have to let us in your premises if you don’t want to: we have no legal right of access, but we’re not going to tell you that.
Between you and me the worst thing I can do is get some paperwork from the Tribunal – but doesn’t give me a right of access, it just allows me to fine you £300 for not letting us in.
What HMRC say: We only ever ask to visit you at home if you run your business from there.
The truth: God, I’d love to see where you live! The thing is this, I don’t have all that much evidence at the moment but if I could see your home, the car(s) in the drive, the pictures on the walls, the photographs of you on holiday, perhaps photographs of the children in school uniform – a private school perhaps? Oh I’d really love that – then I could start to make a case by saying that your lifestyle couldn’t be maintained by the income you declare, and that’s all the evidence I need.
If you do run your business from home I’m only allowed to see the areas you run the business from – not the whole house – but I might poke around and see what I can find.
As children, most of us were taught not to open the door to strangers – and for good reason. Is it any different when those strangers claim to be officers of HMRC? In my view, the general answer is no, yet, an item in the latest Agent Update appears to suggest otherwise:
‘HMRC officers have reported that when conducting authorised unannounced inspection visits to businesses, some agents have advised their clients to refuse the inspection on the grounds that HMRC officers do not make unannounced visits.
‘This is incorrect. This advice has resulted in unnecessary and lengthy discussions taking place between HMRC officers, who are trying to explain that they are permitted to make such visits, and business owners.
‘To reduce misunderstandings and unnecessary confusion, further information about HMRC unannounced visits is available on the compliance checks: unannounced visits for inspections webpage on GOV.UK.’ (Agent Update 70, page ten.)
This is another item of a list of areas where HMRC’s own guidance fails to tell the whole story and where officers try to give an exaggerated impression as to the extent of their rights and underplay the statutory safeguards available to taxpayers.
Rights under FA 2008, Sch 36
Of course, it is entirely correct that HMRC has the right under FA 2008, Sch 36 to carry out inspections of business premises. Further, if a senior officer has authorised the inspection, it need not be pre-announced. I must admit to a level of concern as to the effectiveness of this internal approval system, but that is for another time.
Does this mean that taxpayers have to stand aside and let these officers do what they will at the premises? Most definitely not. As to the sanctions for protecting one’s premises, para 39 provides that a £300 penalty will fall due. However, such a penalty may be levied only if the inspection has been pre-approved by the First-tier Tribunal. In short, unless the tribunal – rather than someone in the HMRC office – has approved the inspection, HMRC cannot compel the occupier to let them in.
It is a different matter if the tribunal has pre-approved the inspection. But the tribunal is not going to give approvals on the nod – this is an important statutory safeguard and it will need to be satisfied that the inspection is justified. One can be sure that the tribunal will require far more persuasion than someone back in HMRC’s office.
In these situations, should one then simply let HMRC proceed? In my view, you cannot prevent the inspection (without incurring a penalty). However, you should be fully entitled to delay the inspection pending obtaining appropriate advice. After all, no penalty is payable if you have a reasonable excuse for obstructing the officer (para 45). As to what constitutes reasonable excuse, this will depend on the circumstances. But, delaying the visit for a couple of hours while one’s adviser is able to turn up and supervise the process seems eminently reasonable to me.
Indeed, given the tone of HMRC’s announcement, it would seem that HMRC will not be averse to exceeding its rights in the course of an inspection. Accordingly, close supervision would strike me as wholly appropriate.
It is a shame that HMRC has referred to discussions on the doorstep as ‘unnecessary’. Of course, there is no necessity for such. But it does not mean that taxpayers are wrong to have them.
If HMRC officers find it unpleasant having these lengthy discussions then they could simply walk away. Alternatively, they will need to persuade a tribunal to sanction the visit in advance.
That process will mean HMRC having ‘lengthy discussions’ elsewhere, although tribunal hearings are at least usually held indoors.
Keith M Gordon