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KEY POINTS
- Some safeguards exist.
- Are powers to inspect business premises ineffective?
- Inspectors need more objective guidance.
- HMRC believe that taxpayers must be educated.
Views differ as to whether HMRC’s new powers and penalties are good or bad. Clearly, having the consistency of the same sets of rules applying across all of the taxes is a good thing.
With regard to the new information powers, I feel that there are a number of safeguards built into the system to protect the taxpayer from unreasonable requests.
For example, taxpayer notices can only demand information that is reasonably required. In addition, once a return has been made for a period, HMRC can only issue a taxpayer notice if an enquiry has been started within the normal time limits or if they believe that there is a loss of tax for the period.
Ineffective power?
Similarly, the right to visit business premises is almost unenforceable. The basic power allows HMRC to enter business premises and inspect:
- the premises;
- any business assets on the premises; or
- any business documents on the premises
if the inspection is reasonably required to check the tax position of a person.
The requirement is that the visit must be carried out either at a time agreed by the occupier or at any reasonable time.
The latter applies if either the occupier is given seven days’ notice or the visit is carried out without notice by or with the agreement of an authorised officer of HMRC, as they want to retain the right of access without warning.
The First-tier Tribunal can also be asked, with the agreement of an authorised officer, to approve an inspection. The tribunal must be satisfied that the visit is justified. The taxpayer cannot be present at this hearing.
However, the following HMRC comments are revealing:
‘The person whose tax position you are checking or occupier of the premises you wish to inspect has the right to refuse you entry. It cannot be overridden, so a person retains the right to refuse entry to their property even when an officer has a right to enter and inspect with tribunal approval.
‘Where the occupier of the premises asks you to leave during the course of an inspection, you must do so immediately.’
The only immediate punishment for this is where a person deliberately obstructs an officer in the exercise of the visit powers under a First-tier Tribunal notice and the penalty will be £300, plus up to £60 a day for each continuing day of failure after the initial penalty has been imposed, with a right of appeal on the ground of reasonable excuse.
Checks are needed, but…
No one will argue that HMRC need checks to deter non-compliance and to ensure that compliant taxpayers are not disadvantaged, but two particular comments from ‘A new approach to compliance checks: Draft legislation and commentary 10 January 2008’ need to be highlighted:
- it was noted that a risk assessment will never be able to completely exclude all compliant taxpayers and the document stated that it was important that ‘at the start of any check HMRC officers assume that the risk may be capable of explanation’;
- in respect of gathering information, the document noted that ‘only information relevant to the risk should be sought and powers should underpin any requirement to provide information which is reasonably required.’
These comments throw the spotlight on to the major problem area with these rules, the attitude of HMRC officers.
The real worry is the gulf which many practitioners see between the theory that HMRC centrally expound, with which most have no objection, and the approach on the ground by individual officers, which often goes well beyond what is acceptable.
HMRC consider it necessary to point out to their Inspectors the following:
‘You should be considerate and polite at all times. You must act in accordance with HMRC guidance.
‘You should carry out your duties in a professional manner, respecting confidentiality and privacy. You should be discreet when on visits or at meetings. Bear in mind taxpayers will not usually wish to discuss their tax affairs in front of their staff, customers, other taxpayers or their family.
‘At the start of your check you should have an open mind as to whether the correct amount of tax has been paid.
‘You should have in the front of your mind HMRC’s commitment to reduce the administrative burden of compliance activity on taxpayers and be customer focussed at all times.’
I find it extraordinary that this has to be pointed out. The fact that it is necessary illustrates my worries about the new powers.
More objectivity needed
The same issue relates to the new penalties regime. This is based on the behaviour of the taxpayer and the basic definitions of the types of inaccuracy are given in the legislation as follows:
- ‘careless’ if the inaccuracy is due to the taxpayer failing to take reasonable care;
- 'deliberate but not concealed’ if the inaccuracy is deliberate but the taxpayer did not take steps to conceal it; and
- ‘deliberate but concealed’ if the inaccuracy is deliberate and the taxpayer made arrangements to conceal it; for example, by submitting false evidence in support of an inaccurate figure.
By implication, there can be no penalty for a mistake but the above process appears extremely subjective. One person’s mistake may be another person’s lack of reasonable care.
Will there be a temptation for HMRC inspectors, under pressure to raise more revenue for a debt-ridden government, to plump for the higher option? We will see.
I have been told by HMRC officials that the new penalties are not about raising revenue, they are about educating taxpayers.
I am afraid that some taxpayers are going to get rather more heavily educated in the future than in the past.
I have had these concerns for some time but then saw the following letter.
‘Fuel benefit
‘Thank you for submitting forms P11D for the year 2007/08.
‘I am presently carrying out a review of expenses and benefits returned on forms P11D and note that your company has reported car benefit but not car fuel benefit.
‘A car fuel benefit charge is incurred where either:
-
the cost of fuel for the company vehicle is met (directly or indirectly) by some person other than the employee (or members of their family or household) to whom the vehicle is provided; or
-
if the employee is reimbursed for any fuel used in that vehicle.
‘Typical examples are; employer meets cost directly via a fuel account, vouchers to enable fuel purchases are provided to employees, employer’s credit card is used to purchase fuel, employer reimburses employees’ purchases of fuel, etc.
‘A car fuel benefit charge can only be reduced to nil where either:
-
in the year, the employee is required to make good to the person providing the fuel for private motoring (which includes home to work travel) the whole of the expense incurred in it’s provision and in fact does so; or
-
fuel is made available for business travel only.
‘Where an employer does not directly meet the cost of fuel used for business in a company vehicle but pays the employee a mileage allowance, no fuel benefit charge will arise if the mileage allowance does no more than meet the cost of fuel used for business travel (HMRC advisory fuel rates can simplify this arrangement for employers/company car users...)
‘If, after considering all of the above, you are satisfied that no fuel was provided and therefore no reportable benefit arose please complete and return the tear off slip at the end of this letter. I would remind you that it is important that the company keep sufficiently robust and detailed records to support this declaration and that these documents may be requested at any future review of your company’s records.
‘If however you now feel that a fuel benefit should have been returned and has in fact been omitted please complete the attached sheet for each omission. Once I have all of the pertinent information I will calculate the amount of tax, National Insurance and interest due. I draw your attention to the fact that failing to report a benefit on form P11D attracts a penalty and all relevant facts shall be taken into account when considering any relevant penalty charge.
‘I must point out that this is not a formal enquiry and that you are not obliged to co-operate with this request but any co-operation extended will be taken into account when considering the level of any penalty. Should the company decide not to co-operate the matter will be considered for a review of the company records where formal powers can be used to enable HMRC to establish the correct amount of tax and National Insurance contributions due.
‘I look forward to hearing from you within the next 30 days.’
Conclusion
This letter is completely unacceptable; to threaten the taxpayer if he does not comply with a completely non statutory process is beyond the pale.
It is to be hoped that this sort of letter is an isolated aberration and not a sign of things to come.
Only time will tell.
Mark Morton is head of Mercia’s tax division and can be contacted on 0116 258 1200. The views expressed in this article are his own.
