Extensive new powers for the Taxman are on their way

Announcements in this year’s Budget represent a major change in the way that HMRC will do business with its ‘customers’.  New information and inspection powers will replace those currently in existence available to officers dealing with both direct and indirect taxes.

Although there has largely been a harmonisation of the existing information powers, the new powers are more extensive and wide ranging than those currently available to HMRC.

From on or after 1 April 2009, HMRC will be able to check a taxpayer’s tax position by:

• Accessing business premises, assets and documents unannounced with the use of a new inspection power
• Requesting sight of original documentation, which they will have the power to copy, remove or mark
• Checking business records before returns are filed
• Seeking information, in addition to documentation, from third parties.

Although there is a risk of unannounced visits, HMRC have indicated that typically seven days notice will be provided. However, the risk of an unannounced visit poses a challenge to businesses in terms of effective document management, interpretation of the extent of the notices and the impact on the business’ reputation.

Ronnie Pannu, director, Tax Investigations says,

“Implementing inspection contingency plans is now really important to ensure businesses are prepared for the unexpected.  I am working with quite a few clients at the moment during their planning implementation.  We have been helping them maximise the benefits of forward planning, collating evidence ready for the unexpected and to ensuring a robust filing position.”

HMRC has indicated it intends to use these new powers to check the following before the tax return is filed:

• To follow up on issues identified in a VAT or PAYE review that is relevant to corporation tax, income tax or capital gains tax,
• Confirm appropriate records are being kept,
• To compare systems with the level of activity
• To check current actions which are relevant to a tax avoidance scheme.

In the future, real time audits are expected to become more common. Given the risk of unannounced visits it is of paramount importance that documentation surrounding tax planning is reviewed to ensure key evidence is identified and complied with, ready for any HMRC inspection or enquiry

Contact details
Email: Ronnie Pannu
Tel: +44 (0)113 289 4021