Should HMRC Tell Me Why They’ve Opened An Investigation?

 In Dirty Tactics, Dirty Tricks, HMRC Investigation, Tools

This question comes up again and again: Should HMRC Tell Me Why They’ve Opened An Investigation? The answer is: “Yes, but you may find HMRC are not forthcoming with this information”.

HMRC’s Compliance Handbook at CH206150 states: “At the start of your compliance check you must tell the person the risk or reason for your check.” Similarly, when asking for information as part of the enquiry, the same section of the manual states the inspector “must provide the person with an explanation of why you need these”.

But many HMRC investigators feel withholding the reason for the investigation puts them at a tactical advantage. They will often say that an enquiry (that’s an investigation) can be random and this could be random.

Don’t be fobbed off – get the reason. Feel free to quote the Compliance Handbook at them.

Once you know the reason for the investigation you will be more in control over what’s happening and if HMRC start to ‘fish’ you will know right away.

John Cassidy, a partner in Crowe Clark Whitehill LLP, says:

When self assessment was introduced much was said about the ability of HMRC to undertake random enquiries. Advisers tended to assume that clients had been chosen for enquiry at random, when the reality was that few cases were random and HMRC had usually identified what they perceived as a risk of the declared tax position being incorrect. Advisers would not be told what that risk was so that nothing could be taken for granted.

A big change in self-assessment enquiries has now taken place which is designed to make them more efficient and focused while improving taxpayer relations.

This initiative is under the single compliance process which should now be the usual course for most small and medium-sized enterprises enquiries, although it is not available in fraud or certain avoidance cases. In future, HMRC should focus on and openly communicate the risks identified during enquiries.

At the outset of an enquiry, HMRC should state the specific concerns and behaviours identified in the case in question and focus on resolving them rather than leaving the agent in the dark and asking for general papers. This is a sensible approach and so far appears to have worked well. It should continue to be best practice and used in all cases.

HMRC’s Compliance Handbook at CH206150 states: “At the start of your compliance check you must tell the person the risk or reason for your check.” Similarly, when asking for information as part of the enquiry, the same section of the manual states the inspector “must provide the person with an explanation of why you need these”. Experience shows that some inspectors are struggling to move away from the old regime and embrace the concept of openness and early dialogue. Nevertheless, if that can gradually change, this will mark an improvement in the enquiry process.

Taken from Taxation.

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