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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 the 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.
Contact JMW Solicitors today for more information on how we can support you, your business, or your client. Call us on 0161 652 5559, or email Evan Wright, a Partner in our Business Crime and Regulation team.
Types of HMRC Tax Inspection Notices
There are a number of notices you may receive during an HMRC tax inspection:
Notice To Produce Documents
If you receive a letter, such as a Taxpayer Notice, asking for documents and/or information to help HMRC check your tax position within a set amount of days, and can not comply with the notice, or within this time, you should contact JMW immediately.
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.
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 of up to £3,000 for each inaccuracy. If you know or find an inaccuracy after submitting documents or information, you must notify HMRC as soon as possible.
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 Proposed Information 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.
It is a criminal offense to conceal, destroy or otherwise dispose of, or arrange for this to happen to, any document specified in the notice or which is later required by a notice approved by the First-tier Tribunal.
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].
You are not able to make an appeal against this notice or any requirement in it. If you need more time to comply with this notice, call our team today.
Inspection Notice: Authorised officer agreement
You will be given prior notice of an officer visiting you, or your business premises, 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.
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 which a person must keep. 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, or it must be put in a prominent place.
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.
An HMRC officer has the legal power to enter premises and carry out inspections but can not 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. If there are any problems with the appointment time or place, please get in touch with JMW for help on 0345 872 6666 or email us now.
Announced Inspection Notice: Tribunal approved
If the first request for inspection is refused, an appeal will be made to the First-tier Tribunal who will approve an inspection to be carried out on your premises.
The notice may look like this.
Unannounced Inspection notice: Tribunal approved
HMRC can perform unannounced inspections on-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 specialist as any evidence gathered may be used in criminal proceedings.
Excise Visit Information Factsheet
The Notice of Inspection process should be distinguished from the Excise Visit Process.
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 an Excise Visit factsheet that gives you important information about the visit and what your rights are. This note will assist clients to know that HMRC can use different powers to inspect and seize documents where the enquiry concerns excise goods. In addition to the factsheet, an HMRC officer will show you their identification and give you notice of inspection.
For information on the power of entry and search related to excise goods, see S161 Customs and Excise Management Act 1979.
Documents/Information Subject to Legal Professional Privilege
Documents may contain some information that is privileged. 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.
Officers can not require a person to provide privileged information or to produce the privileged part of a document. 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. 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 action is taken.
Where officers are seeking documents or information that could include privileged material, the notice, or any information request should contain a paragraph along the lines of that in CH22250 for requests and that in CH22260 for notices.
It should say, for example,
“You do not have to produce documents or provide information for which you can successfully claim the legal professional privilege but you can choose to waive privilege. It may assist the 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 20 working days after the date given for providing the information or document."
“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 is not on the list.”
This 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 upon before the notice is issued. If officers receive such a list, they only have 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.
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.
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.
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.