The taxman cometh...

From 1 April 2009 officers of HM Revenue and Customs (HMRC) have significant new powers to obtain information from taxpayers and to carry out inspections of business premises. This briefing outlines those powers and the rights of taxpayers.

Checking the tax position

The new powers can be exercised by HMRC in any situation in which they wish to check the ‘tax position’ of a person. The concept of ‘tax position’ is a new one and basically covers the past, present and future liabilities of a person. So for the first time HMRC have the power to carry out real time checks on a taxpayer whereas in the past (apart from VAT and PAYE) they have generally always had to wait until a return has been submitted and an enquiry opened.

Power to inspect premises

This is undoubtedly the most controversial part of the new legislation. Previously, VAT legislation gave the right of access to premises but no equivalent power existed in direct tax. HMRC consider this power to be a very important part of the new investigation process and it is to be expected that they will use it as much as they can. It obviously helps them to understand a business better by seeing it in operation rather than simply working from a set of accounts and other descriptions.

What can be inspected?

The power enables HMRC to inspect the business premises and any business assets and documents that are on the premises. This could include looking at stock as well as at capital equipment. Business records such as sales invoices or purchase information can also be inspected. It is important to stress that this is not a search warrant, the officer can only look. If a visit takes place care should be taken about what is visible and the inspection should be limited to only what the officer has asked to see. The officer should also be escorted around the premises.

What should I do if officers turn up unannounced?

The first thing is to check that they are who they say they are. Ask for the written notice and check exactly who has authorised the visit. Note particularly if it has come from the FTT because of the potential penalty position. Officers should be asked for their identity which they should produce and if necessary check this with their office. If there is a suitable reception area, offer the officers refreshments and ask them to wait until a professional advisor has been contacted.

If you require further information or have any queries, please contact Professor Alex McDougall, our Senior Tax Partner, on 0131-625-5151 or click here to email him.