HMRC often overreaches during tax inspections due to commonly believed myths about the extent of its powers, leaving businesses exposed to costly investigations, warned expert John Cassidy, at our annual Tax Investigations Conference on October 11 2019.
Common myths about HMRC’s powers during a tax inspection means it is often able to:
- Collect evidence which it should not have been allowed to look for
- Examine tax advice papers which do not have to be provided
- Conduct interviews with employees even though it is not allowed to do so
Allowing HMRC free rein of the premises can enable inspectors to uncover things which can lead to a fuller investigation, or even support an investigation currently being conducted. It is, therefore, very important that businesses and their advisers are aware of the limits on HMRC’s powers and step in when necessary.
HMRC inspectors will often use ‘force of personality’ to get what they want. This can be difficult to resist in the heat of the moment so having knowledge of the rules at your fingertips can be useful. Here are the some key myths which were debunked at the Conference:
Myth: HMRC can search for documents during an inspection
When making an inspection without a search warrant, HMRC can touch and open documents that are visible but cannot actually search for something that is not visible. The broad rule that businesses need to know is “inspect is by eye and search is by hand”.
Myth: HMRC can inspect any document it wants
Certain documents cannot be inspected; for example, this includes documents that are older than six years, documents with legal privilege and tax advice documents.
Myth: HMRC can enter the premises when making an unannounced visit
HMRC cannot make a forced entry and entry can be refused. If this happens, then HMRC must withdraw immediately.
Myth: HMRC can require a business to add up sales revenues
During an inspection, HMRC can inspect assets on the premises which includes cash. However, HMRC has no power to require a business to ‘cash up’ during an inspection – this means adding up the cash generated during a trading period.
There are steps management can take during an inspection to reduce its impact. For example: inviting inspectors into a private room away from staff and documents; check the inspection notice has been signed by an authorized officer; and call their accountant immediately.
Investigations can be costly, time-consuming and stressful for businesses. PfP are tax specialists, and you can protect yourself against the cost of most investigations with comprehensive cover up to £100,000 and expert tax advice.