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The taxman can now pitch up without warning

06 August, 2009

The HMRC has now got new powers to visit and inspect business premises, the right to obtain information and documents from a taxpayer, together with any relevant third party, and the right to copy, remove and hold these documents to support its findings without giving notice. This new development stems from the merger of the Inland Revenue and Customs departments.

Good reasons for the above actions could range from the material being deemed “reasonably required for the purpose of checking the taxpayer’s tax position” to “a random check to test the quality of (its) risk analysis”. The taxpayers will not be told whether they have been selected at random or whether HMRC thinks it has other reasons for the investigation.

In spite of the HMRC’s new powers, business people should not become overly concerned as they still have the right to deny investigators entry and to control the access they have to the company’s records, including Limited Companies.  The meeting can take the form of seating the investigators in a board room and giving them the relevant files. At any time during the investigation the company can change its mind and withdraw consent, even if halfway through an inspection. The HMRC has provided assurance that its investigators would then leave as requested.

One of the reasons the taxman may visit premises is to check out why a taxpayer has sent in an inaccurate return. Therefore if taxpayers are sending in inaccurate returns and the inaccuracies are either deliberate or careless, HMRC can charge a tax-geared penalty - up to 30% for carelessness or between 70 and 100% for deliberate inaccuracies.

If the HMRC thinks you are guilty of failure to comply with procedure as a result of carelessness, there is scope to argue that you are not culpable and therefore not liable for a penalty. However, in such cases it is usual to engage a company accountant, and it would be wise to consult a solicitor who specialises in contentious limited company tax issues.

The words ‘carelessness’ and ‘reasonable care’ are for a lawyer to determine and as the new rights of the HMRC were only implemented on 1 April 2009, the understanding of these words have not as yet been tested in court.

The HMRC has reportedly said that it does not expect perfection and that mistakes will be made, realizing that bigger companies with larger resources will take greater safeguards to get things right than a smaller business. Meanwhile, with the aid of an experienced solicitor, business leaders can look to question the taxman and potentially avoid being found liable for substantial penalties.

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