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Openness and Early Dialogue in Enquiries
When Self Assessment Enquiries first appeared, the accountancy profession had two main grumbles: there was to be no reason given for the Enquiry, which potentially made it much harder to establish the Inspector’s concerns to get to the crux of the argument and it was not always clear whether the Enquiry was ‘Full’ or ‘Aspect’.
On the face of it the profession should welcome the recent announcement that from November 2007 until April 2008 HMRC are testing a new approach of ‘Openness and Early Dialogue’ because under “Openness” they will be advising taxpayers on the nature of the Enquiry and the reason why the Enquiry has been opened.
Whilst this is being heralded by HMRC as a way of improving communications, is it actually such a radical change? Already HMRC make it clear that they are only undertaking an Aspect Enquiry by statements such as “I will not be checking other areas of your Return unless your reply, or any other information, gives me reason to do so” and indeed last month we saw an Enquiry into a partnership tax Return which was headed “Aspect Enquiry”.
Obviously, the specific nature of an ‘Aspect’ does tend to give a fairly clear indicator as to HMRC’s concerns; yet it will be interesting to see what happens when the Revenue gives its reason to start a Full Enquiry. Will we be back on the merry-go-round where the taxpayer’s agent would argue to the nth degree that the Enquiry should not have been selected?
Early Dialogue is likely to be more relevant to a ‘Full’ rather than ‘Aspect’ Enquiry, although it may prove useful where complex tax issues or commercial transactions are being reviewed.
The intention is that at the outset, HMRC will seek to agree with the taxpayer/agent a timescale for an initial meeting or telephone call in certain cases, the production of information and documents, the records examination and a discussion of findings. Does this appear to be reminiscent of the long since abandoned ‘Fast Track’ approach to Enquiry work?
HMRC believe that an early meeting or a telephone discussion together with the letter advising the reason for the Enquiry will allow the taxpayer/agent to better understand the Enquiry process and agree an appropriate timescale to carry out the various elements. HMRC believe it will benefit by understanding the precise nature of the business or the taxpayer’s circumstances, the records kept and the work carried out by the agent on the client’s behalf prior to its review of the records and therefore will allow HMRC to focus the Enquiry on the key points of risk.
This may pose a dilemma for practitioners: how many times have we heard the lament that things used to be so much better when the Inspector would pick up the phone for a little chat. Will you be quite so keen to get such a call in the future?
Early Dialogue also proposes an agenda for an initial meeting, which will largely cover the issues already mentioned. However, there is one potential contentious area: the agenda might include a discussion of the records kept and agreement of those to be reviewed, including a detailed explanation of why any non-business records have been requested…..
The testing of these proposals will explore the possibility of the initial meeting, record review and discussion of the findings taking place on the same day! Quite how this will be achieved for a Full Enquiry is not explained, but one wonders whether this is a precursor to the establishment of a system similar to that in the Republic of Ireland where the tax authorities descend upon the taxpayer’s business to undertake an audit of all taxes and the whole process is condensed into a much shorter time-scale.
If a subsequent meeting is required to discuss the findings, then the taxpayer/agent will be given an opportunity to answer any questions or concerns arising from the record review. Agreement should then be reached either for a way forward or for closure of the Enquiry.
It is important<
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