Don’t let them in!

    Last month we drew attention to the selective secrecy surrounding HMRC’s taskforce activity. Reasons for the cloak and dagger activity are starting to emerge.

    Teams of HMRC officers armed with USB sticks are arriving unannounced and serving inspection notices on bewildered business owners. Confusing enquiry letters are being handed over at the same time, many of which are patently misleading: "As our records show that you have appointed ACE Accountants to act on your behalf, I will deal direct with them for your check. If you prefer to deal with this matter yourself, please let me know by (a date two weeks later)…".

    How is the business owner supposed to comprehend the logic of the letter, when it is being handed over by an HMRC officer without warning and who is expecting an answer to their questions there and then?

    In reality, in this common scenario, the enquiry letter attracts little attention. The business owner is usually confused and unsure what alternative action is available, other than to comply and do whatever is asked of them.

    More often than not, you are going to find out after the event, when the client has already provided documentation and oral explanations to the pre-scripted ‘Business Review Aide Memoire’ used by the lead officer.

    Therein lies another contentious issue.

    The information powers contained within Schedule 36 FA 2008 and paragraph 10 in particular, state:

    "An officer of Revenue and Customs may enter a person’s business premises and inspect:

    1. the premises;
    2. business assets that are on the premises; and
    3. business documents that are on the premises,


    if the inspection is reasonably required for the purpose of checking that person’s tax position."

    The Aide Memoire contains a whole section of personal lifestyle questions, covering other sources of private income and spending, when it clearly should not.
     
    Notice of inspection

    The notice of inspection is usually served by an officer drawn from the HMRC Taskforces and Specialist Compliance Unit.

    Inspections can only take two forms. They are carried out on either an announced or unannounced basis.

    Announced inspections are typically arranged in agreement with the business owner. Details of the visit are confirmed in writing and issued with factsheet CC/FS3. If there is no agreement, HMRC must give at least seven days’ notice of the inspection and the factsheet will be sent with the notice.

    Unannounced inspections can only be carried out with the agreement of an authorised HMRC officer or the prior approval of a tax tribunal. The written notice will normally stipulate the date and time of the visit, along with the inspecting officers’ names and be accompanied by factsheet CC/FS4.

    The Aide Memoire

    The Business Review Aide Memoire is very similar to a generic interview brief used by inspectors in routine enquiry work and guides the HMRC officers through the questions they should ask and information they should seek.

    It is broken down into the following sections:

    • Case details – including the date and time of the visit and the names of the HMRC officers present.
    • Business information – incorporating details of any associated businesses and website address.
    • Business background – prompting for information on any subsidiary activities, any non-trading premises such as warehouses and record keeping processes.
    • Other income, stock and assets – involving the regularity and recording of stock checks, business vehicles and the use of any external contractors.
    • Owners/partners – comprising other sources of income, personal bank accounts, private assets and details of regular private expenditure.


    HMRC tactics       
                                                  

    It is not uncommon for the visiting team to include HMRC officers from the Systems Evasion and Audit Team (SEAT), who are predominantly interested in downloading information from the businesses computer. Data is generally downloaded on to a new USB stick and then copied on to the laptop of one of the SEAT officers.

    Serial numbers are also taken from the Merchant Acquirer Terminal used by the business.

    Top tips

    Here are five top tips to pass on to your clients. These are especially useful should an unannounced visit be conducted by HMRC outside your normal working hours, perhaps to a client who runs a restaurant or late night convenience store and you are unable to provide immediate assistance.

    1. Don’t panic. Ask why the visit is required and why it has been necessary to do so, on an unannounced basis.
    2. Check the identity cards of the visiting officers against the names shown on the notice of inspection. At the same time establish their discipline i.e. tax, VAT, PAYE.
    3. Establish whether the notice of inspection has been issued by a tax tribunal. If it has, extra caution is required because penalties can be levied for non-compliance.
    4. Decide whether to allow entry on to the business premises or not. If it is not convenient, perhaps because the premises are busy with customers, if the business owner has another urgent appointment such as collecting young children from a childminder, or if the business records are held elsewhere, it is advisable to decline but to offer an alternative date, time and venue.
    5. If the visit does go ahead, ensure any information or documents given to or taken by HMRC are business related and ask for a copy of the completed Business Review Aide Memoire.

    Final thoughts

    The HMRC Hotels taskforce is particularly active at the moment and the Aide Memoire runs to a lengthy 129 questions. In other words, the visiting officers set out to attempt a full interview, often before the accountant is even aware of the visit. It is very difficult to later unsay something that has already been said.

    Frustratingly, it is common for further meetings to be requested.

    In a live ongoing case we are assisting with at the moment, an unannounced visit was made to a hotel. The business owner was absent from the premises, so the visiting officers served the notice of inspection on the hotel manager instead.

    The visiting officers comprised a tax inspector, a VAT inspector, plus two officers from the SEAT team. The hotel manager was told it was a cross tax enquiry.

    Despite being present at the time, the VAT officer has since sought a meeting solely to discuss the VAT matters arising, the tax inspector is going down his separate path, as is the PAYE officer.

    This begs a number of questions. Why was an unannounced visit required in the first place, when it could have been handled as a normal cross tax enquiry without the subterfuge? Why are all the HMRC officers doing their own thing, rather than conducting the enquiry as one? Why do HMRC ignore the costs to the client by seeking separate responses and separate meetings? Why do the officers ignore the cost of their own actions to HMRC?

    Our central concern, which we voice again, is the secrecy concerning taskforces. Initially they were publicised as targeting sectors at a higher risk of tax fraud, but now seem to be used as an avenue to get access to the client and their business records before the accountant can intervene and are being used in inappropriate cases to shock and awe clients into submission.

    Our in-house team of former HMRC inspectors covering tax, VAT and PAYE are ready to work alongside you, should you require assistance representing clients subjected to these shady manoeuvres.

    For further information regarding HMRC taskforce activity, please contact the author of this article, our Head of Technical Research Guy Smith at g.smith@abbeytax.co.uk or Jacqui Mann, Senior Tax Consultant, at j.mann@abbeytax.co.uk.