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What to Expect from HMRC Tax Inspection Notices
An HMRC tax inspection will usually be initiated with a straightforward request to provide information and documents so that a taxpayer's tax liability can be properly assessed. Where necessary, HMRC has the power to obtain authority from the First-tier Tribunal to request the information or to enter and search premises. Although this does not confer a power to use force, failure to cooperate can lead to financial penalties.
Where forced entry is justified, HMRC can use other powers to enter (without notice) with a warrant permitting the use of force. Similar powers allow HMRC officers to enter and request information/material in excise investigations.
This briefing note is a summary of what a corporate or individual taxpayer can expect when faced with different notices and/or officers seeking to use a variety of powers in the course of obtaining information. It is not a substitute for specific legal advice in particular cases.
The Notice of Inspection process should be distinguished from the Excise Visit Process. This note deals primarily with the former but it will assist clients to know that HMRC can use different powers to inspect and seize documents where the enquiry concerns excise goods. The references to excise powers in this note are confined to the information notices officers serve in the course of an excise visit. The note also includes references to the S161 CEMA powers of entry and search, together with powers to enter by warrant in accordance with the Police and Criminal Evidence Act.
What ‘Document’ Means
A document is anything in which information of any description is recorded. This includes records held on any computer, magnetic tape, optical disk (CD-ROM/DVD), hard disk, memory stick, flash drive, floppy disk or other recording media.
Types of HMRC Tax Inspection Notices
We outline below the notices you may receive during an HMRC tax inspection.
1. Notice to produce documents [and / or] provide information
If you receive a letter, such as this, asking for documents and/or information to help HMRC check your tax position within a set amount of days, and cannot comply with the notice, or within this time, you should seek legal advice immediately. Get in touch with JMW today by calling 0161 652 5559 or email firstname.lastname@example.org.
You are entitled to make an appeal against this notice for any requirement to produce other documents or information, or to produce documents or information that relates to your statutory records. Appeals must be made in writing within 30 days of the day you receive the notice and state the grounds of appeal.
In most cases, appeals will be settled by agreement, but if this is not possible, HMRC will write to you stating the reasons why and offer a review to be made by a person who has not previously been involved. You also have the right to an independent tribunal. For more information, take a look at this factsheet or call the Self Assessment Orderline on 0845 900 0404.
If you have not appealed, or an appeal has been settled but you are still required to produce documents or provide information, failure to comply could result in a £300 penalty. If you have still not complied following this penalty, you will be liable to a daily penalty not exceeding £60 for every day the failure continues.
A penalty will also be given if you conceal, destroy or otherwise dispose of, or arrange for this to happen to, any document specified in the notice.
You should make sure to fully comply with every request in the notice, as carelessly or deliberately providing inaccurate information or documents with inaccuracies can result in a penalty up to £3,000 for each inaccuracy. If you know of an inaccuracy, or find an inaccuracy after submitting documents or information, you must notify HMRC as soon as you are aware of this.
2. Taxpayer Notice: Letter before applying for Tribunal approval
If you have failed to provide the documents and/or information listed to help HMRC check your tax position, you will receive a letter notifying you that it is applying to the independent First-tier Tribunal. The letter gives you the opportunity to make representations, as HMRC is legally required to provide a summary of your representations. If you feel you cannot do this for a particular reason, or within this time, please contact JMW as soon as possible on 0800 652 5559 or email email@example.com.
It is a criminal offence to conceal, destroy or otherwise dispose of, or arrange for this happen to, any document specified in the notice or which is later required by a notice approved by the First-tier Tribunal.
3. Taxpayer Notice: Tribunal approved
A notice will be provided by the First-tier Tribunal to produce documents and provide information within a given amount of days that will read a little like this:
Notice to produce documents [and / or] provide informationThis notice is issued under Paragraph 1 of Schedule 36 of the Finance Act 2008.You are required to [produce the documents*] [and] [provide the information] specified or described [below] [in the attached schedule] [within [xx] days from the date of this notice / by [date] /on [date]] [at [time] by [manner]].
If you need more time to comply with this notice, get in touch with JMW as soon as possible on 0800 652 5559 or email firstname.lastname@example.org. You are not able to make an appeal against this notice or any requirement in it.
4. Confirmation of tax inspection and notice to produce documents and information
You will be given prior notice of an officer visiting you to conduct a tax inspection via letter. In this letter, the details of the documents and information you must share will be outlined, as well as the name of the visiting officer and the date, time and place of the inspection. If there are any problems with the appointment time or place between now and then, please get in touch with JMW for help on 0800 652 5559 or email email@example.com.
5. Confirmation of business premises tax inspection and notice to produce documents* and information
If an inspection is arranged of business premises, assets and documents, you will receive prior notice via a letter. A HMRC officer has the legal power to enter a premises and carry out the inspection but cannot enter by using force. If you refuse entry or inspection, the First-tier Tribunal may be called upon to approve a further notice for another visit. Refusal following this notice would leave you liable to penalties.
6. Inspection Notice: Authorised officer agreement
When an officer arrives to carry out an inspection, they will carry a notice that authorises them to conduct an inspection under Paragraph 59 for the purposes of Paragraph 12(2)(b) Schedule 36 Finance Act 2008. This includes inspecting a person’s or business’s premises, assets and documents regarded as ‘statutory records’. Statutory records are the records that tax law says a person must keep.
The premises will have been chosen for inspection because they are used:
- in connection with goods under taxable supplies or documents relating to such goods;
- to store goods or documents in connection with the acquisition of goods from EU member states;
- as a fiscal warehouse or in connection with one.
Officers are allowed to inspect the premises, any goods on the premises and any documents that appear to relate to the sort of goods described above. Inspections must be carried out on a reasonable day and time, and officers must not be refused entry and are not able to enter by using force. Refusal to grant access to a premises or for an inspection to take place can result in penalties.
When attending an inspection, officers must provide the notice to the occupier if they are present. If not, the notice must be given to the person who appears to be in charge of the premises of place in a prominent place.
7. Announced Inspection Notice: Tribunal approved
If the first request for inspection is refused, an appeal will made to the First-tier Tribunal who will approve an inspection to be carried out on your premises. You will receive a notice addressing this and, unless you have a reasonable excuse, should not obstruct the inspection from taking place - doing so could result in a £300 penalty, with a daily penalty of no more than £60 should the obstruction continue.
The notice may look like this.
8. Unannounced Inspection notice: Tribunal approved
HMRC can perform unannounced inspections on a premises with this type of notice if it is ‘reasonably required’ and been approved by the First-tier Tribunal. Unannounced visits are usually made when there has been no cooperation with announced inspections in the past or their suspicions are high and they believe records may be destroyed should notice be given.
The notice may look like this.
Should you receive an unexpected visit from HMRC, you are entitled to representation from a legal specialists as any evidence gathered may be used in criminal proceedings.
9. HMRC Factsheet - Unannounced visits for inspections
When an officer arrives to carry out an unannounced inspection, you will provided with a factsheet that gives you important information about the visit and what your rights are. In addition to the factsheet, a HMRC officer will show you their identification and give you a notice of inspection.
10. Excise Visit Information Factsheet
When an officer arrives to carry out an inspection of excise goods and any items linked to those goods or relevant services, you will be provided with a factsheet that gives you an explanation of why they are visiting.
For information on the power to search premises related to excise goods, see S161 Customs and Excise Management Act 1979.
Documents/Information Subject to Legal Professional Privilege
Officers cannot require a person to provide privileged information, or to produce the privileged part of a document.
Information is privileged if a claim to legal professional privilege or, in Scotland confidentiality of communications, could be maintained in legal proceedings. This is a complex area of the law but, broadly speaking, privilege attaches to documents containing confidential communications between lawyer and client for the purpose of obtaining or giving legal advice, and documents produced for the purpose of contemplated or actual litigation.
Where officers are seeking documents or information that could include privileged material (for example, if they are asking for all documents relating to transaction X, they could include privileged material if the person consulted a lawyer about the transaction), the notice or any informal request should contain a paragraph along the lines of that in CH22250 for requests and that in CH22260 for notices.
A lawyer is a member of the legal profession. Separate guidance exists where officers are seeking documents or information that could include tax advice given by someone who is not legally qualified.
Documents may contain some information that is privileged and some that is not. Where a person does not wish to produce that part of a document that is privileged, they can produce a copy of the part that is not protected. The original document must be made available for officers to inspect if they need to see it. The protected parts may be kept covered up at this inspection. Where any claim for legal professional privilege is made (or any other matter relating to legal professional privilege arises) officers should report to Central Policy, Tax Administration Advice, before any further action is taken.
The Tribunal will resolve disputes about whether information or documents are privileged. However, officers cannot refer any dispute about whether information or documents are privileged to the Tribunal. This must be done by the recipient of the information notice. If officers get a claim that privilege applies and they want to challenge it, they should contact Central Policy, Tax Administration Advice.
Where officers are seeking documents or information that may include privileged items, the notice should contain a paragraph along the following lines. It is based on there being no agreement with the recipient of an earlier date by which the list is to be served. It should be amended if such a date has been agreed before the notice is issued.
“You do not have to produce documents or provide information for which you can successfully claim legal professional privilege but you can choose to waive privilege. It may assist progress of the tax position to check if you do but you would be giving up your right to keep the information or documents private. It may help us to complete our check if you do. Legal professional privilege is a complex area of the law that only properly applies in limited circumstances. I may wish to challenge any claim to legal professional privilege on the basis that I disagree that the documents or information being withheld properly fall within the scope of the privilege. If you decide to withhold documents or information because legal professional privilege attaches to them, you must give me a list of each document or type of document withheld. Under the law, you must send the list to reach me no later than USER TO INSERT ACTUAL DATE [20 working days after the date given for providing the information or document]. The list should say, for example, “I am not providing the following items because I think they fall within legal professional privilege: (1) letter dated xx/xx/xxxx from [name of client] to [name of lawyer] asking for advice on the law; (2) letter dated yy/yy/yyyy from [name of lawyer] to [name of client] giving advice on the law”. You do not have to describe a document if describing it would itself cause a dispute about privilege. You should let me have all the items mentioned in the notice that are not on the list.”
If officers receive such a list, they have only 20 working days from receiving it to notify the person from whom it was received that there are items on the list that they still require and consider not to be privileged. If they miss that deadline, they will not be able to enforce the notice in respect of the disputed items.
Do I have to allow an inspection to take place?
If you choose to not allow an inspection to be carried out, HMRC will ask an independent Tribunal to approve the inspection. If they approve it and you still refuse to allow the inspection to be carried out, you will be charged a £300 penalty. For every day you refuse the inspection from taking place, you can be charged up to £60 a day.
If the visit is at an inconvenient time, another time can be arranged under certain circumstances.
What if I have a reasonable excuse for not allowing the inspection to take place?
If you have a reasonable excuse for not allowing an inspection to be carried out, you must tell HMRC straightaway to avoid paying a penalty. A reasonable excuse is usually an unexpected or unusual event that is either unforeseeable or beyond your control. What is or is not a reasonable excuse depends on an individual’s abilities and circumstances. Those abilities and circumstance may mean that what is a reasonable excuse for one person may not be for someone else.
What if I run my business from home?
If you run your business from home, or keep stock or other assets there, an inspection can still take place. However, officers will only be able to enter those parts of your home that are used for business purposes, unless you invite them in or they are carrying out a valuation.
If they are checking your Income Tax or Corporation Tax liability, officers may need to value your private premises if it is relevant to their check. They may also need to value property in your private premises if they are checking your liability to Stamp Duty Land Tax, Stamp Duty Reserve Tax or Inheritance Tax, or to check any liabilities that relate to Capital Gains Tax.
Other Powers of Search and Seizure
Search warrants in criminal investigations are usually obtained under the Police and Criminal Evidence Act, authorised by Justice of the Peace. Where ‘Special Procedure Material’ is likely to be found on the premises, a warrant will be authorised by a Circuit Judge. Special Procedure Material includes documents held under a duty of confidence to a third party - typically, a bank, insurance company, solicitor or accountant might hold such material.
The Serious Crime Act 2007
Section 22 and Schedule 12 allow HMRC to use draconian powers in the investigations into serious criminal activity. The terms and scope of warrants is important and disputes can often arise regarding the proper execution of the warrant. It is therefore important to obtain early legal advice in circumstance where HMRC and other officers request or demand entry and disclosure of documents and other materials in the course of their search.