.png)
.png)
The Revenue has recently undergone some internal restructuring, although details on this have been few and far between. However, the National Audit Office report into self assessment sheds a little more light on this most recent reshuffle:
'The Inland Revenue is making changes to the organisation of the local office network, and in April 2001 established 60 specialist area risk intelligence and analysis teams to improve the focus of compliance work. These teams are now responsible for planning compliance work and for the selection of up to 90 per cent of cases for enquiry.'
From this, it is clear that the Revenue is finally gearing up for compliance work in a scientific way. The selection of cases has been a major problem for the Revenue in days gone by and this matter is clearly being addressed by the use of intelligence teams and targeted projects:
'From summer 2001, the department plans to increase the scope and scale of automatic cross-checks between taxpayer declarations and third party information, such as interest paid by banks and building societies, and it is currently negotiating with local authorities to secure consistent and complete information for local offices on landlords receiving housing benefit.'
Tried and tested techniques
It is interesting to see that the Revenue is adopting information-gathering techniques and practices which have been used by Customs and Excise for many years. This more scientific approach can be illustrated by two examples within the National Audit Office report:
- 'Using information obtained from the district valuer on multiple or frequent property transactions, the Inland Revenue undertook a compliance review concentrating on repossessed properties, which are often sold quickly at a profit. It reviewed the tax records for the individuals involved in these transactions to identify taxpayers who may have made capital gains or were involved in property dealing which they had not declared.
'From 175 cases examined in one tax office, the Inland Revenue settled 141 cases, identifying extra tax yield of £1.25 million. This work has since been carried forward on a national basis.' - 'Inland Revenue staff visited local restaurants at various times during opening hours, without identifying themselves, and purchased meals as ordinary customers. While in the restaurant, they noted the number of waiting staff on duty, the till operation and cash handling arrangements, the number of diners, the potential capacity of the restaurant, and the proportion of customers who paid their bills in cash. On completion of their meal, they settled their bill in cash, noting whether the staff offered them a receipt and, if so, whether it carried an identifiable reference number.
'Of the 41 cases taken up, the Inland Revenue has settled 13 and identified extra tax yield of £700,000. It expects this to rise by a further £1.3 million from cases awaiting settlement.'
Personally, I have no difficulty with the approach the Revenue is adopting, provided that it focuses on worthwhile cases. I am sure that we have all dealt with cases which have dragged on, the Inspector clearly attempting to identify a particular concern, but not prepared to share it with the adviser. I feel that, from all points of view, a little more openness from the Revenue in some cases could lead to a swifter settlement of the case, whether this be in the Revenue's favour or the taxpayer's.
As mentioned, the above approach makes good sense. However, areas for concern which have recently come to light are the increasing focus on accounts with less than a £15,000 turnover, and the involvement of Special Compliance Office in local district corporation tax self assessment enquiries.
Turnover of under £15,000
Regarding the matter of accounts with a turnover of under £15,000, it may well be that some unscrupulous taxpayers attempt to keep their turnover at this level. The Revenue can check this as appropriate. However, current Revenue information appears to suggest that there will be a national focus on such accounts. In relation to the amount of money potentially at stake, it does not seem a worthwhile approach to adopt on a national basis and certainly the Revenue's letters in this respect are extremely heavyhanded. Surely it is appropriate for the Revenue to state its approach openly in such cases.
Special Compliance Office
With regard to the involvement of Special Compliance Office, the Revenue's Working Together Issue 5 contained a piece hidden away at the back of the publication regarding full enquiries into company accounts. This suggested that Special Compliance Office Inspectors would be acting as coaches and mentors to Inspectors in local districts working corporation tax self-assessment enquiries. The article suggested that Special Compliance Office Inspectors might well be present at meetings:
'In all cases we will notify the company and its professional adviser, in advance, whom we propose to attend from the Revenue, and whether one of them is a coach from Special Compliance Office. If the company or its adviser has concerns about the proposed attendees, then the case owner will discuss these concerns on a case by case basis. We will not normally plan to have more than two Revenue personnel at any meeting, although there may be occasions where progress can be accelerated by having more, by agreement.'
Two particular concerns arise from this. The first is that the interviews will not be conducted under the Hansard procedure that Special Compliance Office cases would normally adopt. If a matter develops during one of these meetings that attracts Special Compliance Office interest, at what stage should the meeting be drawn to a conclusion?
The second point is that the Revenue seems to assume that there will be a meeting to discuss the enquiry in every case. Under the new corporation tax self assessment enquiry régime, it is quite clear that the records examination should take place initially, and that a meeting should only subsequently be requested if there are areas of concern to discuss. If there are no such areas, no meeting is required. If there are areas of concern, then an agenda should be provided beforehand. My personal feeling is that no local district enquiry should be undertaken with Special Compliance Office present, but it remains to be seen how far the Revenue will push this matter.
Times change
Evidently, it is a time of change. Certainly, enquiries will become far more focused in the future and this is to be welcomed. However, a little more discussion about some of these 'initiatives' before they are implemented may go a long way towards establishing more trust between the practitioner and the local Inspector.
Mark Morton provides lecturing and consultancy work for Mercia Group Ltd, the independent provider of training to the accountancy profession. He can be contacted on 0116 2581200; e-mail: mark.morton@mercia-group.co.uk.
