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Key points
- Some HMRC investigations will continue normally.
- Check whether the notice has been received in time.
- Will working remotely make monitoring post difficult?
- Understand the nature of the enquiry.
- The coronavirus may make compliance difficult within normal time limits.
In the title, I am speaking figuratively of course. Now we are all, in effect, on lockdown, HMRC shouldn’t be coming near agents or clients in person for a while, but what should advisers to do if they receive a notice of enquiry or investigation or an assessment?
As we adapt to the coronavirus, many things are changing, not least our working practices. Many of us are working remotely in an attempt to limit contact with others and, as a result, post arriving at the office will remain unopened for a while. In the run up to the end of the financial year, this can be problematic for business owners and accountants, particularly considering that HMRC has also adapted its working practices. Although many HMRC officers are working remotely, I understand that some functions are carried out separately and will continue almost as normal. This includes the risk assessment of errors and under-declaration of tax by individuals and businesses, as well as the issue of assessments if there is an ongoing investigation or a known risk.
The deadlines for issuing assessments and opening investigations vary depending on behaviour and the location of the relevant assets; however, the majority of these deadlines are subject to the letter being received by the taxpayer on or before the end of the tax year.
With this in mind, the following points are practical reminders of what should be undertaken by an accountant or tax adviser on receiving letters from HMRC.
Check the time limits
Notices of enquiry should have been received by the taxpayer within 12 months of the filing deadline – 31 January if the return was filed on time. If the return was filed early, HMRC has exactly 12 months from the date of filing to open the return. If it was filed late, HMRC has 12 months from the end of the quarter day after the return was filed. This means that if a 2017-18 return was filed at any time between 1 February 2019 and 30 April 2019, HMRC has until 30 April 2020 to issue a notice of enquiry.
Many tax practitioners are now working remotely and will therefore be unable to identify exactly when letters arrive. If there are already ongoing enquiries with HMRC or if businesses have an existing customer compliance manager (CCM) or other special point of contact within HMRC, they should ask them to ensure letters are emailed rather than posted. HMRC may request an email authorisation form to be completed, although the requirement for a ‘wet’ signature may be waived in the current circumstances.
If possible, ensure that someone is in the office as frequently as possible to date stamp letters coming in (and those that have already arrived). Alternatively, it may be worth setting up a redirect service if advisers are expecting time sensitive post. These simple steps can make it easier to identify letters that arrive after relevant deadlines and can be appealed against if appropriate.
Note that the legislation requires the letters to be delivered to the taxpayer’s last known address. Therefore, it is likely that unless the taxpayer is resident (or stranded) overseas, they will also receive the letter and should inform you immediately.
Arguably, the more important deadline was 5 April – the deadline for raising assessments or opening an investigation is (generally speaking) four, six or 20 years from the end of the relevant tax year. I say ‘more important’ because HMRC has four years from the end of a relevant tax year to open an investigation even if it considers a person to have taken reasonable care. Even if an enquiry is out of time, an investigation may not be.
Identify the sender
Which department issued the notice? Understanding who the notice is from can indicate the seriousness of the enquiry or investigation. For example, a letter from the local compliance office is likely to be less serious than a letter from the offshore evasion unit.
Establish the issue
Is the letter an information notice, an assessment or a notice of enquiry or investigation?
HMRC investigations are usually issued under code of practice 8 (CoP8) for serious cases or CoP9 for suspected fraud. Either case needs careful handling to ensure the client remains protected while co-operating with HMRC. Investigations are different for each person and will also depend on whether the investigation relates to their personal or business circumstances. Further, these can then extend to business or personal areas depending on how far the under-declaration goes. The aim here is to reach settlement with HMRC as quickly as possible, while ensuring that the correct taxes are collected and penalties kept to a minimum.
If the letter is a notice of enquiry, the first thing to identify is the type of enquiry: full, aspect or random. As HMRC’s risk assessment tools become more sophisticated, random enquiries become less common. Consequently, best practice is to assume HMRC has identified a risk, regardless of whether that risk has resulted in an error. If the enquiry type is unclear, phone the officer to discuss the matter. In most cases (except serious fraud), HMRC officers are happy to discuss cases with authorised agents to reach a better understanding of the situation and, hopefully, an efficient resolution.
If information is provided to HMRC in relation to aspect enquiries and the documents are not reviewed beforehand, there is a danger that what should have been a relatively simple matter could spiral into a fully-fledged investigation over a number of years. It is essential that advisers are aware of exactly what is submitted and that relevant transactions (for example) have been clarified with the client before the information is passed to HMRC.
Assessments can be issued at the end of an enquiry or investigation or during the course of an ongoing investigation to ‘protect’ HMRC’s position by ensuring that years which would otherwise be out of time remain open. A client may be issued with a discovery assessment if new information has recently come to HMRC’s attention in relation to the client’s tax position and the department believes this has led to an under-declaration. In this case, time limits must be checked as well as considering whether the discovery is still valid or whether it has ‘gone stale’.
Although an information notice may appear benign, it is likely to be a precursor to a more serious investigation if the questions are not answered correctly and in full. Information notices are usually a last resort if informal requests or requests as part of an enquiry have not been responded to in full. That said, it is important the information provided to HMRC is limited to what it is permitted to request and what the client is required to provide. See below.
Question the validity of the information notice
Advisers should ask themselves whether the information notice is reasonable, relevant and whether the information is in the person’s power or possession?
The legislation in relation to information notices is broad when considering what HMRC is entitled to request. When reviewing an information notice, consider whether:
- the information requested is reasonably requested;
- relevant to determining the client’s past, present or future tax position; and
- in the client’s possession or power to obtain.
Further details on information notices can be found in my article ‘Too much information’ (Taxation, 12 September 2019, page 16).
Talk to the client
Before responding to HMRC, it is essential to speak to the client to ensure both the adviser and client understand the situation. Does the client fully understand the seriousness and implications of the letter? Does the adviser know everything about their client’s affairs – both in the UK and overseas?
To provide the best protection for the client and to guide them correctly, it is essential that the adviser knows what they are dealing with. Any response to HMRC will be retained on record. Later on, if it comes to light that the response was incorrect, questions will be asked as to how this happened and this could affect penalties further down the line.
Respond in time
If possible, respond to HMRC within the time limits given, usually 30 days from the date of the letter. If it will not be possible to do this, call or write to HMRC explaining the reasons and requesting an extension. The department recognises that, in some cases, it may not be possible to respond in time and extensions may be given if the reasons are reasonable.
Ignoring HMRC’s letter will not make the issue disappear. It is likely to have the opposite impact and raise the client’s profile. The most effective way to protect the client and resolve HMRC issues is to enter into dialogue with the Revenue and to work with it from the beginning.
HMRC understands that Covid-19 may have affected agents’ workflow and ability to collect post. Advisers who have been affected by this should contact HMRC as soon as possible on receipt of the correspondence and alert the officer to the situation. If a client has been unwell (with Covid-19 or otherwise), they should obtain a doctor’s note.
Others who are affected by issues with time limits as a result of self-isolation are advised to obtain an isolation note from NHS111.
